constraints on cabinet formation in parliamentary democracies coalition theory typically treats political parties involved in government formation in parliamentary democracies as if they were unconstrained players in an institution free world yet actual coalition options are often severely constrained by institutional arrangements and prior commitments we develop a systematic account of different constraints on government formation and examine their frequency across 10 parliamentary democracies hypothetical and empirical examples demonstrate how a small number of constraints can dramatically reduce the range of coalition options and redistribute bargaining power among political parties more adequate coalition theories need to recognize the effects of such constraints and to build on the theoretical lessons of the neoinstitutionalist approach to legislative behavior

necessity as the mother of invention monetary policy after the crisis we examine recent changes in monetary policy due to the financial crisis and ask whether they are likely to be temporary or permanent we present evidence from two original surveys one of central bank governors the other of academic specialists we find that central banks in crisis countries are more likely to have resorted to new policies to have had discussions about changing mandates and to have communicated more extensively but thinking has changed more broadly for instance many central banks in non crisis countries also report implementing macro prudential measures looking forward we expect central banks to have broader mandates use macro prudential tools more widely and communicate more actively than before the crisis while there is no consensus yet about the usefulness of unconventional monetary policies we expect most of them will remain in central banks toolkits as governors who gain experience with a particular tool are more likely to assess that tool positively finally the relationship between central banks and their governments might well have changed with central banks crossing the line into the political realm more often than in the past

institutional investors and the qe portfolio balance channel the operation of the portfolio balance channel has been emphasized by monetary policy makers as a key channel through which quantitative easing qe policies work we assess whether the investment behavior of insurance companies and pension funds in the united kingdom during the global financial crisis was consistent with such an effect by analyzing both sectoral and institution level data our results suggest qe led to institutional investors shifting their portfolios away from government bonds towards corporate bonds but did not lead to a shift into equities

antitakeover charter amendments and stockholder wealth abstract many large corporations have recently adopted antitakeover charter amendments which make the transfer of corporate control more difficult this paper develops and tests competing theoretical explanations for the passage of these amendments in one view antitakeover provisions are adopted because incumbent management seeks job protection at stockholders expense the alternative hypothesis is that antitakeover provisions benefit stockholders perhaps by extracting greater payment in exchange for corporate control although inconclusive the evidence provides weak preliminary support for the hypothesis that antitakeover amendments are best explained as a device for managerial entrenchment

default premiums in commodity markets theory and evidence we model the effect of nonperformance risk on forward and futures pricing and look for evidence of nonperformance risk in precious metals futures prices from the hunt brothers episode changes in default premiums are measured and related to the sequence of events in the metals markets during this period results suggest first that ex ante costs of nonperformance can be a significant priced factor in commodity markets and second that the arrival of new information is often associated with changes in these costs the evidence has implications for both theoretical and empirical research on commodity markets organized commodity markets offer traders an efficient medium in which to execute their hedging and speculative strategies in particular the markets have developed mechanisms that reduce the costs of nonperformance which would be substantial in the absence of an organized exchange devices such as margin requirements position limits daily marking to market price limit moves and the clearinghouse reduce the expected costs of distress and default in commodity markets while organized exchanges greatly reduce expected costs of nonperformance they do not eliminate such costs throughout the history of organized futures trading there have been many instances of markets collapsing or coming to the brink of collapse after a period of unusual trading activity the most prominent example in recent times is the near collapse of the new

dual class recapitalizations as antitakeover mechanisms abstract we report evidence on shareholder wealth effects of 94 firms recapitalizing with dual classes of common stock with disparate voting rights we find significant negative abnormal stock price returns at the announcement of the dual class recapitalization when we consider recapitalizations separately announced since the nyse imposed a moratorium is june 1984 on the delisting of companies with dual classes of equity we find significant negative abnormal returns as compared with insignificant returns in the earlier period those firms recapitalizing from june 1986 through may 1987 experienced the most significant negative returns observed

medium of payment in corporate acquisitions evidence from interstate bank mergers it has been known for some time that the medium of payment used in acquisitions is an important factor to consider see carleton et al 1983 it has also been noted that different methods of financing a project have different infor lllational implications myers and majluf 1984 krasker 1986 furthermore a substantial volume of empirical literature on stock issues reports negative stock price reactions to new offerings of seasoned common stock for example asquith and mullins 1986 kalay and shimrat 1987 this paper examines the role of medium of payment in corporate acquisitions with the help of evidence from a large sample of interstate bank mergers which took place over the five year period from 1982 through 1986 under state statutes passed in compliance with the douglas amendment to the bank holding company act 1956 initiated in 1982 merger activity of this type has grown rapidly in volume ever since and has already dramatically changed the stiucture of the commercial banking industry in this country the results of this study indicate that when the full sample of banks involved in interstate bank mergers is divided into subsamples by medium of payment the abnormal announcement period returns for the subsamples are equal to each other as well as to the results for the full sample the finding that bidder returns are not affected by the bidder s choice of medium of payment is in contrast with findings of the existing empirical studies that have explored this issue in the context of nonbank mergers see asquith biuner and mullins 1987 travlos 1987 eckbo and langohr 1989 franks hams and mayer 1988 they all report significantly higher bidder returns from cash financed acquisitions than from stock financed acquisitions

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

defensive mechanisms and managerial discretion we study a model where firms may possess free cash flow and takeovers may be disruptive we show that the possibility of a takeover combined with defensive mechanisms and the ability to pay greenmail can solve the free cash flow problem in an efficient way the payment of greenmail reveals information that generates a stock price decline that exceeds the value of the greenmail payment even though the payment of greenmail is value maximizing optimal defensive measures limit takeover attempts if the target stock price is too low we also provide cross sectional implications of the analysis

corporate financial policy and corporate control abstract this paper presents evidence that stockholder wealth declines on average when managers respond to attempted hostile takeovers with defensive changes in asset and ownership structure the data also indicate that these corporate restructurings are typically quite large and that many are attempts by managers to create barriers specific to the hostile bidder and or to consolidate a block of voting securities in the hands of management allies the evidence suggests that defensive motives whether beneficial or harmful influence corporate asset and ownership structure

corporate control and the choice of investment financing the case of corporate acquisitions we test the proposition that corporate control considerations motivate the means of investment financing cash and debt or stock corporate insiders who value control will prefer financing investments by cash or debt rather than by issuing new stock which dilutes their holdings and increases the risk of losing control our empirical results support this hypothesis in corporate acquisitions the larger the managerial ownership fraction of the acquiring firm the more likely the use of cash financing also the previously observed negative bidders abnormal returns associated with stock financing are mainly in acquisitions made by firms with low managerial ownership do firms have systematic preferences for the means of financing investments in modigliani and miller s 1958 m m s perfect market no tax world the means by which investments are financed are irrelevant for the total value of the firm miller 1977 extended this irrelevance proposition to a case where taxes exist however casual observation suggests that firms are not indifferent to the means of financing for example many firms prefer to finance investments from internal sources or by debt rather than by issuing new equity an explanation for such systematic financing preferences and the consequent capital structure of firms is therefore called for indeed a number of such explanations have been advanced for example deangelo and masulis 1980 showed that in miller s 1977 framework the means of financing is not irrelevant if firms have different expected marginal effective tax rates due to differences in fixed charges it has also been argued that financing preferences may result from agency costs associated with debt e g barnea haugen and senbet 1981 or from asymmetry of information between managers and outside investors myers and majluf 1984 recently harris and raviv 1988 and stulz 1988 advanced a new argument for the existence of financing preferences that centers around managers incentive to maintain control over the corporation specifically by increasing debt and using the proceeds to retire equity held by the public owners managers increase the probability of maintaining control and reaping the benefits associated with it since the substitution of debt for outsiders equity decreases the fraction of

standstill agreements privately negotiated stock repurchases and the market for corporate control abstract standstill agreements are voluntary contracts which limit a substantial stockholder s ownership interest in a corporation for a specified number of years they are often accompanied by repurchase of the substantial stockholder s shares at a premium above the market price standstills and premium buybacks reduce competition for corporate control and provide differential treatment of large block stockholders the analysis indicates a statistically significant negative average effect on non participating stockholder wealth associated with standstill agreements negotiated premium repurchases are also associated with negative but less significant stockholder returns the evidence is inconsistent with the hypothesis that these management actions are in the best interests of non participating stockholders

elections governments and parliaments in proportional representation systems this paper presents a theory of parliamentary systems with a proportional representation electoral system a formateur selected based on party representation in parliament and parties that cannot commit to the policies they will implement once in government government formation involves efficient proto coalition bargaining and elections yield unique strong nash equilibrium outcomes depending on the status quo minimal majority surplus or consensus governments can form if parties and voters are myopic and the status quo is subject to shocks consensus governments and centrist policies occur only in a crisis otherwise governments are minimal winning and policies reflect only the preferences of the government parties

takeover motives during the conglomerate merger wave this article examines the stock market response to acquisition announcements during and immediately after the conglomerate merger wave of the late 1960s the main finding is that acquirer shareholders benefited from diversification acquisitions which implies that diversification was not driven by managerial objectives it is also shown that the market responded positively to bidders who retained the management of target companies and negatively to bidders who replaced target management this is consistent with the hypothesis that the market favored acquisitions intended to exploit managerial synergies it suggests that the market disliked takeovers that were motivated to discipline target management evidence on buyer and target price earnings ratios is presented that is inconsistent with the conjecture that conglomerates were able to mislead investors by earnings per share manipulation

employee stock ownership and corporate control an empirical study abstract this study reexamines the wealth and corporate control effects of employee stock ownership plans esops and finds that the adoption of an esop is in general associated with positive wealth effects however the polaroid court ruling significantly changed the market s perception by enhancing the antitakeover role of esops a significant negative market response is found only after the court ruling analysis of speculation and bid activity initiated after an esop adoption shows a significant decline in takeover related activity following the court decision regression analysis corroborates this evidence consistent with stulz journal of financial economics 20 1988 25 54 and harris and raviv journal of financial economics 20 1988 55 86 the results also suggests a non monotonic relationship between firm value and managerial ownership the results support the scholes and wolfson financial management 49 1990 12 28 hypothesis that esops are not primarily implemented for tax advantages

elections coalitions and legislative outcomes predictions of electoral behavior in a multiparty setting should be a function of the voters beliefs about how parties will perform following an election similarly party behavior in a legislature should be a function of electoral promises and rewards we develop a multistage game theoretic model of three party competition under proportional representation the final policy outcome of the game is generated by a noncooperative bargaining game between the parties in the elected legislature this game is essentially defined by the vote shares each party receives in the general election and the parties electoral policy positions at the electoral stage parties and voters are strategic in that they take account of the legislative implications of any electoral outcome we solve for equilibrium electoral positions by the parties and final policy outcomes

a model of pre electoral coalition formation abstract in many countries three or more candidates compete against one another in single office elections i present a model of three candidates competing for a single office in which two candidates can form a coalition prior to the election a pre electoral coalition since the candidates are both policy and office motivated one candidate can incentivize the other candidate to withdraw his candidacy by choosing a joint policy platform i examine how electoral environments such as election rules ideological distance and pre election polls influence incentives to form pre electoral coalitions i find that pre electoral coalitions are more likely to form i in plurality elections than in two round runoff elections ii as the threshold for first round victory decreases in two round runoff elections iii as the two potential coalition partners ideological distance increases conditional on divided support and iv as the fraction of office value which is transferable increases moreover i analyze and compare voter welfare under plurality and the two round runoff rules

ethical aspects of investor behavior the neoclassical paradigm assumes that shareholders utility is solely a function of their wealth and prescribes that management should act in a manner consistent with share price maximization the stakeholder view also assumes that shareholders utility derives from wealth but prescribes that managers must balance the shareholder wealth maximization objective against the rights of other constituencies thus while neoclassicists and stakeholder theorists have different prescriptives for management behavior their definitions of the shareholders interest are consistent shareholders are self interested economic agents whose utility is best served by share price maximization however if shareholders are other interested and attack importance to ethical and moral values then both the neoclassical and stakeholder view derive from invalid assumptions in this paper i present evidence that much shareholder behavior is ethically motivated as a result the basis for both the neoclassical and the stakeholder view are weakened

learning to bid the design of auctions under uncertainty and adaptation we examine auction design in a context where symmetrically informed adaptive agents with common valuations learn to bid for a good despite the absence of private valuations asymmetric information or risk aversion bidder strategies do not converge to the bertrand nash equilibrium strategies even in the long run deviations from equilibrium strategies depend on uncertainty regarding the value of the good auction structure the agents learning model and the number of bidders although individual agents learn nash bidding strategies in isolation the learning of each agent by flattening the best reply correspondence of other agents blocks common learning these negative externalities are more severe in second price auctions auctions with many bidders and auctions where the good has an uncertain value ex post

the continuing muddles of monetary theory a steadfast refusal to face facts lionel robbins was concerned about the methodology of economic science when he discussed the relationship between theory and reality two of the examples of inappropriate relationships were taken from monetary economics such shortcomings continue among the worst are 1 is lm whereby the monetary authorities set the monetary base and the interest rate is market determined 2 the monetary base multiplier of bank deposits and the role of reserve ratios 3 the current three equation neoclassical consensus assuming perfect creditworthiness and hence no need for banks 4 the analysis of the evolution of money

mergers and investment incentives this paper explores the effects of mergers on the investment incentives of the levered firm and on levered firm value under a fairly broad set of assumptions it is shown that most firm combinations improve investment incentives bringing about a reduction in the agency costs of underinvestment associated with risky debt the effect of the merger on debt and equity claim values is also explored if not properly anticipated the merger may create a wealth transfer from equity holders to bondholders such a wealth transfer includes but is not limited to the coinsurance effect

when politics and models collide estimating models of multiparty elections theory the spatial model of elections can better be represented by using conditional logit models which consider the position of the parties in issue spaces than by multinomial logit models which only consider the position of voters in the issue space the spatial model and random utility models in general suffer from a failure to adequately consider the substitutability of parties sharing similar or identical issue positions hypotheses multinomial logit is not necessarily better than successive applications of binomial logit conditional logit allows for considering more interesting political questions than does multinomial logit the spatial model may not correspond to voter decision making in multiple party settings multinomial probit allows for a relaxation of the iia condition and this should improve estimates of the effect of adding or removing parties methods comparisons of binomial logit multinomial logit conditional logit and multinomial probit on simulated data and survey data from multiparty elections results multinomial logit offers almost no benefits over binomial logit conditional logit is capable of examining movements by parties whereas multinomial logit is not multinomial probit performs better than conditional logit when considering the effects of altering the set of choices available to voters estimation of multinomial probit with more than three choices is feasible

collars and renegotiation in mergers and acquisitions i examine the motivation for and effect of including a collar in a merger agreement the most important cross sectional determinants of the bid structure cash vs stock and whether to include a collar are the market related stock return standard deviations for the bidder and target this evidence supports the hypothesis that the method of payment is dependent on the sensitivities of the bidder and target to market related risk because either has the incentive to demand renegotiation of the merger terms if the value of the bidder s offer changes materially relative to the value of the target during the bid period an important decision made during merger or takeover negotiations is the method of payment to be offered to target shareholders takeover bids can be made in cash and or some combination of securities issued by the bidding firm a considerable number of papers in the finance literature provide empirical evidence on the determinants of the choice between stock and cash as the method of payment including carleton et al 1983 niden 1986 crawford 1987 auerbach and reishus 1988 amihud lev and travlos 1990 chaney lovata and philipich 1991 and martin 1996 however this literature typically ignores the increasing fraction 20 in recent years of stock merger bids that contain a collar while an ordinary stock merger bid specifies the number of bidder shares offered as consideration for each target share the exchange ratio a collar bid provides for certain changes in the exchange ratio conditional on the level of the bidder s stock price around the effective date of the merger often insulating target stockholders from volatility in the bidder s stock price and promising a cash like payoff at the end of the bid period collar bids come in two basic forms the first which i call fixed exchange fex specifies a constant exchange ratio over a range of bidder stock prices with adjustment to the ratio outside those bounds an example of this type of transaction is the merger agreement announced on january 17 1994 between

an empirical analysis of the role of the medium of exchange in mergers in empirical studies of differences between firms which are acquired and those which are not researchers typically divide firms into two groups acquired and nonacquired in this paper we argue that cash takeovers may be sufficiently different from noncash acquisitions that failure to distinguish between them may lead to inappropriate generalizations we provide evidence from the mid 1970s that three categories of firms can be distinguished nonacquired acquired in a cash takeover and acquired in an exchange of securities there is a substantial empirical literature exploring the differences between firms which are acquired and those which are not typically these studies divide firms into two groups acquired and nonacquired and analyze the differences in the characteristics of the two groups using binary dependent variable techniques such as discriminant analysis or probit analysis a fundamental shortcoming of these studies is that no distinctions are made concerning the nature of the merger or the acquiring firm that is it is assumed that acquired firms fall into a single category that is distinguishable from nonacquired firms in fact individual acquisitions may be motivated by quite different features suggesting that more than a single category of acquired firms should be analyzed in this paper we argue that cash takeovers may be sufficiently different from noncash acquisitions that modeling the events as being the same i e just mergers may be inappropriate we then provide evidence using data for the mid 1970s that three types of firms can be distinguished nonacquired acquired in a cash takeover and acquired in an exchange of securities the paper is organized as follows in the next section we suggest why firms acquired for cash may be quite different from firms acquired by an exchange of securities section ii describes the empirical techniques which are used and

optimal toeholds in takeover contests abstract we offer an explanation for why raiders do not acquire the maximum possible toehold prior to announcing a takeover bid by endogenously modeling the target firm s value following an unsuccessful takeover we demonstrate that a raider may optimally acquire a small toehold even if the acquisition does not drive up the pre tender target price this occurs because although a larger toehold increases profits if the takeover succeeds it also conveys a higher level of managerial entrenchment and hence a lower firm value if the takeover fails we derive new predictions regarding the optimal toehold and target value following a failed takeover we also examine the impact of a rival bidder and dilution

empirical testing of auction theory given the state of affairs in auction theory there is at least one model for instance to support any position one would care to take concerning the revenue of sealed bid vs open auctions it should not come as a surprise that a fair amount of empirical work in auctions is underway this paper reports the results of some recently completed research i first discuss papers in which the predictions being tested derive directly from the pure theory of auctions and then papers in which the predictions arise out of an application of auction theory to a related institution

qe a successful start may be running into diminishing returns existing studies may have underestimated the impact of qe1 on uk gdp because they did not take full account of the beneficial effect on credit risk spreads and on the exchange rate however all such effects were also influenced by the roughly simultaneous introduction of similar easing in the usa which complicates the analysis another area where qe has been positive is in reducing public sector borrowing costs where qe1 and subsequent rounds have disappointed is in their inability to stimulate a recovery in credit and monetary growth amid an increased desire among banks to hold far more of their reserves at the central bank moreover there is growing evidence of significant diminishing returns in qe2 as gilt rates have already fallen to historically low levels and the risk is that if policy makers fail to resuscitate the bank lending channel further rounds of qe could potentially have negative returns

the role of esops in takeover contests this article examines both the shareholder wealth effects of employee stock ownership plans esops announced by firms subject to takeover pressure and the takeover incidence of targets with and without esops although we do not find that defensive esops significantly reduce shareholder wealth on average we identify two factors the change in managerial and employee ownership due to the esop and the simultaneous announcement of other defensive tactics that are associated with negative stock price reactions we find that esops are strong deterrents to takeover esop targets that are acquired earn higher returns than targets without esops but the difference is not statistically significant copyright 1994 by american finance association

pre electoral commitments and government formation recent studies show that pre electoral commitments and the ideological distance between parties influence government formation but do pre electoral pacts or rejections of party combinations really have an independent impact on the outcome of the government formation game which policy areas matter when parties agree to build a coalition this paper addresses these questions by applying a dataset that includes information on preferred rejected coalition partners and the policy area specific programmatic heterogeneity of all potential coalitions the results show that pre electoral commitments have a significant impact on government formation after controlling for endogeneity problems there is also evidence that not only diversity in economic issues determines the partisan composition of governments

international transmission channels of u s quantitative easing evidence from canada en reaction a la grande recession la reserve federale americaine a reduit son taux directeur a sa valeur plancher afin d accentuer la detente monetaire la banque centrale americaine a par la suite mis en oeuvre des achats massifs d actifs ce qui a eu pour effet de quadrupler la taille de son bilan

the role of bank advisors in mergers and acquisitions this paper looks at the role of commercial banks and investment banks as financial advisors in their role as lenders and advisors banks can be viewed as serving a certification function however banks acting as both lenders and advisors face a potential conflict of interest that may mitigate or offset any certification effect overall we find evidence of a net certification effect for target firms but conflicts of interest for acquirers in particular target firms earn higher abnormal returns when the target s own bank is hired as merger advisor consistent with the bank s role as certifier of the more informationally opaque target s value to the acquirer in contrast we find no net certification role for acquirers there are at least two possible reasons for this first certification of value may be less important for acquirers because it is the target firm that must be priced in a merger second acquirers may utilize commercial bank advisors in order to obtain access to bank loans to finance activities in the postmerger period thus an acquirer may choose its own bank with whom it has had a prior lending relationship as an advisor in a merger however this choice weakens the certification effect and creates a potential conflict of interest because the advisor s merger advice may be distorted by considerations related to the bank s past and future lending activity

boom and bust patterns in the adoption of financial innovations we develop a dynamic model of the adoption of financial innovations each period firms decide whether or not to adopt an innovation of uncertain value and the profitability of each period s adoptions reveals information about the innovation s value we show that characteristics of financial innovation waves cited by critics as evidence of irrational excess are in fact consistent with fully rational behavior we also show that social welfare is enhanced when more firms adopt innovations of questionable value and that financial intermediaries base an incentive to encourage such adoption article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

framing controversial actions regulatory focus source credibility and stock market reaction to poison pill adoption we contribute to the research on organizational accounts by examining the role of different framing languages and the credibility of the frame articulator on justifying controversial organizational actions drawing on regulatory focus theory and the literature on source credibility we develop novel arguments as to how a gains versus nonlosses framing and the perceived credibility of the speaker influence stakeholder responses as well as how the effectiveness of these aspects is influenced by context we test our arguments using data on the framing of the adoption of poison pills by u s firms between 1983 and 2008 using content analysis and an event study we find that a gains framing aligned with the dominant institutional logic leads to a positive stock market reaction while statements emanating from speakers with potentially self serving interests negatively affect the stock market reaction our findings further show that the effectiveness of framing and source credibility are dependent on contextual attributes such as speaker visibility prior performance and practice prevalence

the rationale behind interfirm tender offers information or synergy this paper investigates the rationale behind interlirm tender offers by examining the returns realized by the stockholders of lirms that were the targets of unsuccessful tender offers and lirms that have made unsuccessful offers our results suggest that the permanent positive revaluation of the unsuccessful target shares documented by dodd and ruback 1977 and bradley 1980 is due primarily to the emergence of and or the anticipation of another bid that would ultimately result in the transfer of control of the target resources we also find that the rejection of a tender offer has differential effects on the share prices of the unsuccessful bidding firms depending upon whether the tender offer process results in a change in the control of target resources on the basis of these results we conclude that acquisitions via tender offers are attempts by bidding firms to exploit potential synergies not simply superior information regarding the true value of the target resources

the construction of tender offers capital gains taxes and the free rider problem shareholders are less likely to tender shares in the first stage of a two tier offer than in an any or all offer this is inconsistent with the view that two tier offers overcome the free rider problem this article shows that two tier offers with a fully taxable first stage and a nontaxable second stage are structured to induce shareholders with low capital gains tax liabilities to accept the first stage and shareholders with high capital gains tax liabilities to accept the second stage in offers where both the first and second stage compensations are taxable high tendering rates occur in the first stage copyright 1988 by the university of chicago

the effect of poison pill securities on shareholder wealth abstract this paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth i find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines also the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers although this evidence is consistent with managerial entrenchment the evidence implies that on average poison pill defenses have seemingly had only a modest effect on firm valuation

identifying control motives in managerial ownership evidence from antitakeover legislation this study uses the introduction of second generation antitakeover legislation as a natural experimental setting to infer the value that managers place on the control rights conferred by stock ownership we conjecture that managers will reduce their stockholdings in the post legislation period because they can ensure their prior level of control while holding fewer risky shares using a variety of specifications we find robust evidence consistent with this revealed preference hypothesis further demonstrating the key role played by control considerations in managers stockholding decisions the reductions in ownership are concentrated in management teams with higher levels of initial ownership and in firms without poison pills

how golden parachutes unfolded diffusion and variation of a controversial practice we contribute to a growing focus on variation in diffusion processes by examining the ways in which contested practices are modified as they spread among adopters expanding on prior diffusion accounts we argue that the extensiveness and similarity of a practice will vary in response to both population and organization level mechanisms to examine these issues we study variation in golden parachute contracts a controversial corporate governance practice that emerged and spread widely during the hostile takeover wave of the 1980s using a concept network approach to analyze the composition of parachute plans we find evidence of mechanisms that both increase and decrease extensiveness and variation of golden parachutes our findings hold implications for accounts of practice diffusion over contested terrain by revealing substantial variation in the course of diffusion

optimal stock trading with personal taxes implications for prices and the abnormal january returns abstract the tax law confers upon the investor a timing option to realize capital losses and defer capital gains with the tax rate on long term gains and losses being about half the short term rate the law provides a second timing option to realize losses short term and gains long term if at all our theory and simulation over the 1962 1977 period establish that taxable investors should realize long term gains in high variance stocks and repurchase stock in order to realize potential future losses short term tax trading does not explain the small firm anomaly but predicts a seasonal pattern in trading volume which maps into a seasonal pattern in stock prices the january anomaly only if investors are irrational or ignorant of the price seasonality

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

paying the price the impact of controversial governance practices on managerial reputation this study directly examines the reputational penalties that managers pay when they engage in controversial governance practices that raise questions about managerial self interest these penalties

coalition theory and its applications a survey we survey some of the major advances in coalition theory in recent years we then look at the recent applications of the theory in the area of political economy and touch upon some important theoretical and applied open questions in the field

price and probability decomposing the takeover effects of anti takeover provisions we study the effects of anti takeover provisions atps on the takeover probability the takeover premium and target selection voting to remove an atp increases both the takeover probability and the takeover premium that is there is no evidence of a trade off between premiums and takeover probabilities we provide causal estimates based on shareholder proposals to remove atps and address the endogenous selection of targets through bounding techniques the positive premium effect in less protected firms is driven by better bidder target matching and merger synergies

managerial incentives and product market competition are imperfectly competitive leibenstein 1966 claims that there may be a substantial amount of x inefficiency where x inefficiency measures the degree to which actual profits depart from the maximum of profits that could be obtained if all operations in the firm were carried out at minimal costs he offers empirical evidence from case studies showing that the welfare loss due to organizational slack is of an order of magnitude bigger than the welfare loss due to monopolistic price distortions on imperfectly competitive markets these results support the common presumption that increasing competition reduces organizational and in particular managerial slack however this early literature does not offer a theoretical explanation for the link between competition and managerial incentives in particular it ignores the fact that managerial incentives can be affected by the design of an incentive scheme in this paper i derive the optimal incentive scheme for a manager as a function of the competitiveness of the environment in which his firm operates the basic impact of increased competition is that it reduces the profits of a firm this has two effects in the model first if a firm has high costs then the reduction of profits may be sufficient to render the firm unprofitable so the probability that it has to be liquidated goes up this unambiguously induces the manager of the firm to work harder for a cost reduction in order to avoid liquidation and to keep his job second the reduction in profits may affect

do tender offers create value new methods and evidence abstract conventional techniques of estimating takeover value improvements measure only a fraction of the total gain and include revelation about bidder stand alone value to address these biases we develop the probability scaling method which rescales announcement date returns and the intervention method which uses returns at intervening events perceived value improvements are larger than traditional methods indicate we cannot reject the hypothesis that bidders on average pay fair prices combined bidder target stock returns are higher for hostile offers lower for equity offers and lower for diversifying offers these effects reflect revelation about bidder stand alone value not differences in gains from combination

unconventional monetary policy the assessment the uncon ventional monetary policy measures adopted by the major central banks in the period since 2008 are discussed in this paper we highlight some important differences between quan titative easing and conventional monetary policy and then evaluate the mechanisms through which quantitative easing may propagate to financial markets and the real economy drawing on perspec tives from monetarist and new keynesian theory additional measures intended to supplement or strengthen the effects of pure quantitative easing often termed unconventional unconventional monet ary policy are also assessed in our discussion we relate the various articles in this issue to some of the key research questions posed in relation to unconventional monetary policy

the determinants of tendering rates in interfirm and self tender offers the authors estimate the determinants of shareholder heterogeneity by examining the shareholder responses to fixed price self tender offers and two tier interfirm tender offers tendering rates are increased in the cash price relative to the postoffer price of the stock proxies for capital gains tax liabilities also explain tendering rates controlling for the cash tender relative to the postoffer price of the stock the authors find that tendering rates are significantly higher in interfirm tender offers than in self tender offers which indicates that shareholders view accepting another firm s stock as an unattractive means of avoiding capital gains copyright 1992 by university of chicago press

target profits and managerial discipline during the conglomerate merger wave this paper takes a close look at the extraordinarily high premerger profit rates of target companies during the conglomerate merger wave both publicly traded and privately owned targets were significantly more profitable than other firms in their industries and size classes this implies that managerial discipline was not a predominant takeover motive during the period however public targets were less profitable than private targets and the largest public targets earned only average profits this suggests that managerial discipline may have been important for the few takeovers that involved large publicly traded targets copyright 1993 by blackwell publishing ltd

security pricing and deviations from the absolute priority rule in bankruptcy proceedings claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 bankruptcy reform act we measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents on average 7 6 of the total awarded to all claimants evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority suggesting that deviations from the rule were expected by the equity markets the absolute priority rule hereafter apr states that a bankrupt firm s value is to be distributed to suppliers of capital such that senior creditors are fully satisfied before any distributions are made to junior creditors and junior creditors are paid in full before common shareholders bankruptcy reorganization proceedings however are leaving shareholders and junior creditors with valuable assets even when senior claimants receive only partial settlements as barrett and sullivan 1988 noted traditionally shareholders have been last in line their claims on a troubled company s assets have had the lowest priority and their impact on the course of bankruptcy code proceedings generally has been next to nil but lately the balance of power has been shifting warner 1977 provided one of the early discussions of the implications of deviations from the apr baldwin and mason 1983 pp 510 511 examined the resolution of claims in the massey ferguson reorganization and provided no support for the hypothesis that the market believes absolute priority rules will be enforced if the firm defaults on its financial obligations franks and torous 1989 analyzed a sample of bankruptcies that occurred during the period 1970 through 1984 and found that 21 of 27 sample cases exhibited departures from the apr more recently weiss 1990 examined 37 firms that filed for bankruptcy between 1980 and 1986 and reported that 27 of the cases involved apr violations

large shareholders and the monitoring of managers the case of antitakeover charter amendments this paper examines the role of large shareholders in monitoring managers when they propose antitakeover charter amendments we attempt to distinguish between two competing hypotheses the active monitoring hypothesis and the passive voting hypothesis we find a statistically significant positive relation between institutional ownership and the stockholder wealth effects of various types of amendments after controlling for ownership concentration among institutions managerial ownership and firm size our empirical evidence lends support to the active monitoring hypothesis proposed by demsetz 1983 and shleifer and vishny 1986 that the existence of large shareholders leads to better monitoring of managers

quantitative easing is not as unconventional as it seems policy interest rates do not have to be short the means by which monetary authorities influence prices and quantities can differ but the obstacles to altering one rather than the other are not insuperable inflation is sluggish and expectations of future interest rates long and short nominal and real are diverse and uncertain these factors determine the limited power that monetary authorities enjoy when they conduct quantitative easing but this policy is not as unconventional as some have claimed and indeed can be viewed as broadly similar to conventional monetary measures the impact of quantitative easing however could be very different depending on the underlying structure of the economy and the fiscal authorities responses finally we note some important caveats that must be borne in mind when trying to evaluate the impact of quantitative easing particularly given the fact that the world s main financial markets are closely linked copyright 2012 oxford university press

takeover defenses ownership structure and stock returns in the netherlands an empirical analysis this study empirically examines the relationships between a firm s takeover defenses and its ownership structure and stock returns analyzing data of dutch listed companies we find that multiple antitakeover defenses are increasingly adopted when firms are characterized by relatively lower ownership concentration the evidence supports the hypothesis that more concentrated ownership of shares provides more effective monitoring of managers as defense by issuing preferred share has recently been the most widely adopted mechanism in the netherlands its impact on shareholders wealth is also analyzed we observe the presence of two opposing effects of this antitakeover measure

competition among sellers in securities auctions we study simultaneous security bid second price auctions with com petition among sellers for potential bidders the sellers compete by designing ordered sets of securities that the bidders can offer as payment for the assets upon observing auction designs potential bidders decide which auctions to enter we characterize all symmet ric equilibria and show that there always exist equilibria in which auctions are in standard securities or their combinations in large markets the unique equilibrium is auctions in pure cash we extend the model for competition in reserve prices and show that binding reserve prices never constitute equilibrium as long as equilibrium security designs are not call options jel d44 d82 g10 in economic and financial markets rights to control and exploit assets with the potential to generate cash flows are often sold through auctions while in some auc tions the winner s future profits from the asset cannot be used as a basis for payment so only cash bids are possible in many cases it is possible to observe and verify the ex post cash flows this means that bidders can submit their bids in the form of securities the values of which are contingent on future cash flows from the asset securities auctions are common in the real world examples include government sales of oil leases lead plaintiff wireless spectrum and highway building auctions many other transactions though not formally auctions are similar to securities auc tions in nature examples include corporate takeovers intercorporate asset sales book publishing advertising and venture capital markets 1 in this paper we analyze equilibrium auction mechanisms when sellers compete for potential bidders by altering security designs of their auctions rather than reserve prices as in the prior literature specifically we consider an environment in which

an empirical analysis of the reincorporation decision the literature suggests two competing explanations for reincorporations efforts at managerial entrenchment and attempts to improve contractual efficiency the empirical evidence to date is inconclusive to seek further evidence we examine a large sample of firms that changed their state of incorporation over the period 1980 1992 we find that shareholder wealth is decreased by reincorporations that erect takeover defenses but is increased by reincorporations that establish limits on director liability firms that claim they reincorporate to limit the personal liability of their board members and thereby attract better qualified outside directors do in fact expand the outside representation on their boards whereas firms citing other motives do not

ownership of equity in dual class firms abstract the paper investigates the hypothesis that large shareholders use shares with differential voting rights for the purpose of expropriating minority shareholders consistent with several theoretical arguments but inconsistent with the expropriation hypothesis we find that large shareholders own much more equity than required for control we also show how the law can construct a regulation which reduces the opportunity for expropriation and at the same time allows for the possible benefits of differential voting rights

the mode of acquisition in takeovers taxes and asymmetric information we develop a model in which the mode of acquisition conveys information concerning the value of the bidder the model incorporates the possibility that offers containing both cash and stock can be made in a setting consistent with the u s tax code we demonstrate that bidders with unfavorable private information about their equity value choose offers containing some stock to avoid the capital gains tax consequences of cash offers the model yields a number of unique predictions about the construction of acquisition offers we present evidence consistent with the model when one firm acquires another it can pay for the acquisition with cash stock or a combination of the two recent studies find that announcement returns to bidding firms who make cash offers are higher than when stock offers are made models consistent with this evidence note that as in myers and majluf 1984 a bidder with private information about the value of its assets only offers stock when its shares are overvalued by target shareholders recognizing this adverse selection target shareholders reduce their estimate of the bidder s value thus without some benefit in stock over cash as a means of payment a lemons problem arises for stock offers and bidders only choose cash offers our paper advances the use of stock in an offer through its tax advantages in the united states to realize the benefits available in nontaxable offers an offer must contain at least fifty percent stock thus when the bidder has private information about the value of its assets stock off6rs can still occur because of their tax advantage the intuition is as follows target holders can postpone the realization of capital gains when they receive stock in a takeover so other things equal they demand higher prices in cash takeovers while the offer of stock may have tax advantages the shares swapped are valued by the target as if they were offered by the average bidder making a stock offer thus a pool of higher private valuation bidder types choose cash offers in spite of the tax consequences a pool of lower private valuation types

the logic of gamson s law pre election coalitions and portfolio allocations gamson s law the proposition that coalition governments will distribute portfolios in proportion to each member party s contribution of seats to the coalition has been one of the most prominent landmarks in coalitional studies since the 1970s however standard bargaining models of government formation argue that gamson s law should not hold once one controls for relevant indicators of bargaining power in this article we extend these bargaining models by allowing parties to form pre election pacts we argue that campaign investments by pact signatories depend on how they anticipate portfolios will be distributed and thus signatories have an incentive to precommit to portfolio allocation rules we show that pacts will sometimes agree to allocate portfolios partly or wholly in proportion to members contributions of seats to the coalition this increases each signatory s investment in the campaign thereby conferring external benefits in the form of a larger probability of an alliance majority on other coalition members empirical tests support the model s predictions

crossing takeover premiums and mix of payment an empirical test of contractual setting in m a transactions the analyses of the tender offer premiums and of the means of payment should not be performed separately in the empirical literature these two variables are often considered independently although they may have an endogenous relationship in a contractual setting using a sample of european m as over the 2000 2010 decade we show that these two variables are jointly set in a contractual empirical approach the relationship between the percentage of cash and the offer premium is positive higher premiums yield payments with more cash we highlight that the payment choice is not a continuum between full cash and full share payments two different regimes of payment in m a transactions are empirically characterized we analyze the major determinants of m a terms when the offer premium and the means of payment are jointly set the underlying rationale of an asymmetry of information and a risk sharing calculus is found to be significant in the setting of the agreement

takeover defenses and wealth effects on securityholders the case of poison pill adoptions abstract this is the first study to examine the valuation effects of any antitakeover amendment on both bondholders and stockholders we present new evidence documenting that on average there is a significant wealth loss experienced by bondholders at poison pill adoption announcement while stockholders are unaffected our finding of significant bondholder losses is consistent with the proposed negative signal hypothesis we document results which indicate that bondholders correctly anticipate the degree of leverage increase at the time of the announcement we also show that the proportion of insider ownership is negatively related to bondholder wealth effect at announcement this supports the notion that higher insider manager ownership leads to a greater alignment of manager stockholder interests while increasing the stockholder bondholder agency costs long run analysis of leverage and performance measures reveal that pill adopting firms are not under leveraged as compared to their industry rivals however supporting the negative signal hypothesis the leverage of sample firms rises significantly after the pill adoption performance measures reveal that sample firms significantly underperform their industry cohorts this result suggests that poison pill adoptions are motivated by poor managers attempting to immunize themselves from the disciplinary actions of the corporate control market

reciprocal shareholding and takeover deterrence reciprocal shareholding has been argued to increase managerial power and facilitate takeover resistance the latter may translate into higher premiums in the event of an actual takeover thus benef

the effects of asset purchases and normalization of u s monetary policy this paper examines changes in the effects of unconventional monetary policies in the united states to this end we estimate a markov switching var model with absorbing regimes to capture possible structural changes our results detect regime changes around the beginning of 2011 and the middle of 2013 before 2011 the u s large scale asset purchases lsaps had relatively large impacts on the real economy and prices but after the middle of 2013 their effects were weaker and less persistent in addition after the middle of 2013 which includes the monetary policy normalization period the asset purchase or balance sheet shocks had slightly weaker effects than during the early stage of the lsaps but stronger effects than during the late stage of the lsaps while interest rate shocks had insignificant effects on the real economy and prices finally our results suggest that the positive responses of durables and capital goods expenditures to interest rate shocks weakened the negative impacts of interest rate hikes after the middle of 2013 including the period of monetary policy normalization jel c32 e21 e52

sovereign debt the assessment this article serves as an introduction to two issues of the oxford review of economic policy one entitled sovereign debt understanding bond markets during the eurozone crisis and the second sovereign debt lessons from the past reforms for the future we begin by documenting recent trends in advanced country sovereign indebtedness and reviewing events that preceded the sovereign debt crisis in the eurozone the mechanisms through which rising sovereign debt may impact bond yields economic growth and inflation are discussed and the evidence for such effects is reviewed our discussion highlights that there is no unique threshold beyond which sovereign debt exerts adverse macroeconomic effects and that in order to understand the consequences of a given debt load one must analyse its structure in terms of internal and external creditors currency denomination the time to maturity of the bonds and the legal code governing debt issuance as well as various economic and political constraints measuring the fiscal space of the sovereign we then turn our attention to episodes in which sovereign debt proves excessive and default occurs we review explanations for the protracted and inefficient nature of defaults and describe some lessons from historical studies examining default outcomes in the final part of the paper we discuss proposals for averting future debt crises including jointly issued bonds such as eurobonds contingent convertible bonds and elements of a sovereign debt restructuring mechanism in the course of our discussion we draw on each of the 11 articles included in the two issues of this journal devoted to sovereign debt copyright 2013 oxford university press

an empirical investigation of the impact of antitakeover amendments on common stock prices abstract antitakeover amendments are amendments to a corporation s charter that impede the ability of an outsider to gain control of the firm a number of individuals and institutions have onjected to such amendments on the grounds that they are not in the best interests of the shareholders of the firms that adopt them this paper employs event time methodology to investigate the impact of antitakeover amendments on the common stock prices of firms that adopt them the results indicate that the announcement of such amendments is associated with a positive revaluation of stock price contrary to the concerns of their critics we conclude that antitakeover amendments are proposed by managers who seek to increase the value of the firm and are approved by stockholders who share that objective