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on Corporate Finance |
| By: | Ellis, Jesse (University of Pittsburgh); Moeller, Sara B. (University of Pittsburgh); Schlingemann, Frederick P. (University and Pittsburgh and Erasmus University); Stulz, Rene M. (Ohio State University) |
| Abstract: | Using a sample of control cross-border acquisitions from 61 countries from 1990 to 2007, we find that acquirers from countries with better governance gain more from such acquisitions and their gains are higher when targets are from countries with worse governance. Other acquirer country characteristics are not consistently related to acquisition gains. For instance, the anti-self-dealing index of the acquirer has opposite associations with acquirer returns depending on whether the acquisition of a public firm is paid for with cash or equity. Strikingly, global effects in acquisition returns are at least as important as acquirer country effects. First, the acquirer's industry and the year of the acquisition explain more of the stock-price reaction than the country of the acquirer. Second, for acquisitions of private firms or subsidiaries, acquirers gain more when acquisition returns are high for acquirers from other countries. We find strong evidence that better alignment of interests between insiders and minority shareholders is associated with greater acquirer returns and weaker evidence that this effect mitigates the adverse impact of poor country governance. |
| JEL: | G31 G32 G34 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2011-1&r=cfn |
| By: | Luís Miguel Serra Coelho (University of the Algarve and CEFAGE); Kose John (New York University); Richard J. Taffler (Warwick Business School) |
| Abstract: | This paper asks whether the stocks of bankrupt firms are correctly priced, and explores who trades the stocks of these firms, and why. Our sample consists of firms that enter into Chapter 11 and remain listed on the NYSE, AMEX, and NASDAQ post-filing. We show that these stocks are heavily traded by retail investors who are also their main stockholders. We further document that these stocks have unique lottery-like characteristics, and that retail investors trade in such stocks as if they were gambling on the market. Buying and holding such securities leads, on average, to a negative realized abnormal return of at least -28% over the 12-month post-announcement period. We find that arbitrageurs are not able to exploit this market-pricing anomaly due to implementation costs, and risks that are simply too high. We thus conclude that a combination of gambling-motivated trading by retail investors and limits to arbitrage seems to lead to the anomalous results we document. Our paper thus provides a clear answer to Eugene Fama and Kenneth French’s recent question on their blog – “Bankrupt Firms: Who’s Buying?”. |
| Keywords: | Chapter 11 filing; Post-bankruptcy trading; Gambling; Lottery stocks; Limits to arbitrage; Retail investors. |
| JEL: | G14 G33 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:cfe:wpcefa:2011_03&r=cfn |
| By: | Engel, Eduardo (Yale University); Fischer, Ronald (University of Chile); Galetovic, Alexander (Universidad de los Andes, Chile) |
| Abstract: | We examine the economics of infrastructure finance, focusing on public provision and Public-Private Partnerships (PPPs). We show that project finance is appropriate for PPP projects, because there are few economies of scope and because assets are project specific. Furthermore, we suggest that the higher cost of finance of PPPs is not an argument in favour of public provision, since it appears to reflect the combination of deficient contract design and the cost-cutting incentives embedded in PPPs. Thus, in the case of a correctly designed PPP contract, the higher cost of capital may be the price to pay for the efficiency advantages of PPPs. We also examine the role of government activities in PPP financing (e.g. revenue guarantees, renegotiations) and their consequences. Finally, we discuss how to include PPPs revenue guarantees and the results of PPP contract negotiation in the government balance sheet. |
| Keywords: | Fiscal accounting; PPP premium; Project finance; Renegotiations; Revenue guarantees; Special Purpose Vehicule |
| JEL: | G32 H54 R42 |
| Date: | 2010–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:ris:eibpap:2010_002&r=cfn |
| By: | Metiu Norbert (METEOR) |
| Abstract: | This paper implements a simultaneous equations model to test for international financial contagion among developed sovereign credit markets between May 1, 2000 and September 1, 2010. Two alternative measures are proposed that identify credit crises in the tails of bond yield distributions, which are derived from Extreme Value Theory and Value-at-Risk analysis. The findings show that the large-scale fluctuations in long term sovereign bond yields observed during episodes of financial distress signal a structural shift in cross-market linkages with respect to tranquil periods. All analyzed countries are vulnerable to shift-contagion and the estimated contagion effects are robust across the different measures of credit crises. The empirical results convey the policy implication that a new sovereign debt management mechanism ought to incorporate the risk of financial contagion, as it carries adverse effects on the overall financing constraints in the economy. |
| Keywords: | monetary economics ; |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2011004&r=cfn |
| By: | Bitsch, Florian (Technische Universität München); Buchner, Axel (Technische Universität München); Kaserer, Christoph (Technische Universität München) |
| Abstract: | We analyze the risk, return and cash flow characteristics of infrastructure investments by using a unique dataset of deals done by private equity-like investment funds. We show that infrastructure deals have a performance that is higher than that of non-infrastructure deals, despite the lower default frequencies. However, we do not find that infrastructure deals offer more stable cash flows. Our study offers some evidence in favour of the hypothesis that higher infrastructure returns could be driven by higher market risk. In fact, these investments appear to be highly levered and their returns are positively correlated to public-equity markets, but uncorrelated to GDP growth. Our results also indicate that returns could be influenced by the regulatory framework as well as by defective privatization mechanisms. By contrast, returns are neither linked to inflation nor subject to the "money chasing deals" phenomenon. |
| Keywords: | Infrastructure investment; Private equity |
| JEL: | G23 G24 |
| Date: | 2010–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:ris:eibpap:2010_004&r=cfn |
| By: | Estache, Antonio (Université libre de Bruxelles) |
| Abstract: | This study analyzes the main approaches to infrastructure financing in developing countries and their evolution. It places the discussion in the context of the importance of infrastructure investment and maintenance needs to achieve growth and borader social objectives. It summarizes the evidence on the efficiency, equity and fiscal consequences of the main public and private financing options commonly used to achieve these goals in these countries. It shows the limits of the role of the private sector as a source of financing of infrastructure and the wide underestimation of public-sector financing support needed to serve the poorest and ensure that services are offered at prices consistent with their ability to pay. It concludes with forward-looking lessons from roughly 20 years of efforts to diversify the sources of infrastructure finance in developing countries. |
| Keywords: | Infrastructure finance; Poverty; Developing countries |
| JEL: | H54 H81 |
| Date: | 2010–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:ris:eibpap:2010_008&r=cfn |
| By: | Glaser, Markus; Lopez-de-Silanes, Florencio; Sautner, Zacharias |
| Abstract: | We analyze the internal capital markets of a multinational conglomerate to determine whether more powerful unit managers enjoy larger allocations. We use a new dataset of planned and actual allocations to business units to show that, although all unit managers systematically over-budget capital expenditures, more powerful and better connected managers obtain larger shares of cash windfalls and increase investment about 40% more than their less powerful peers. Results survive robustness tests and are not explained by differences in managerial abilities or an endogenous allocation of managers across units. Our findings support bargaining-power theories and provide direct evidence of a source of capital allocation frictions. |
| Keywords: | Internal Capital Markets; Corporate Investment; Capital Budgeting; Managerial Power; Agency; Influence Activities; Corporate Politics |
| JEL: | D21 G31 G34 L22 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28488&r=cfn |