Handbook of Empirical Corporate Finance SET (eBook)

B. Espen Eckbo (Herausgeber)

eBook Download: PDF | EPUB

2008 | 1. Auflage
520 Seiten
Elsevier Science (Verlag)
978-0-08-055956-8 (ISBN)

Infos

The empirical analysis of firms' financing and investment decisions-empirical corporate finance-has become a dominant field in financial economics. The growing interest in everything corporate is fueled by a healthy combination of fundamental theoretical developments and recent widespread access to large transactional data bases. A less scientific-but nevertheless important-source of inspiration is a growing awareness of the important social implications of corporate behavior and governance.

*Takes stock of the main empirical findings to date across an unprecedented spectrum of corporate finance issues
*Discusses everything from econometric methodology, to raising capital and capital structure choice, and to managerial incentives and corporate investment behavior.
*Contributors are leading empirical researchers that remain active in their respective areas of expertise
*Writing style makes the chapters accessible to industry practitioners

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This two-volume set summarizes recent research on corporate decision-making. The first volume covers measurement and theoretical subjects as well as sources of capital, including banks, public offerings, and private investors. In the second volume, contributors focus on the ways corporations are structured and the practices through which they can be bought and sold. Thus, its major subjects include dividends, capital structure, financial distress, takeovers, restructurings, and managerial incentives. Takes stock of the main empirical findings to date across an unprecedented spectrum of corporate finance issues Discusses everything from econometric methodology, to raising capital and capital structure choice, and to managerial incentives and corporate investment behavior Contributors are leading empirical researchers that remain active in their respective areas of expertise Writing style makes the chapters accessible to industry practitioners

Inhalt

Front Cover 1
Handbook of Corporate Finance: Empirical Corporate Finance 4
Copyright Page 5
Contents 20
Introduction to the Series 6
Contents of the Handbook 8
Preface: Empirical Corporate Finance 10
PART 1 ECONOMETRIC ISSUES AND METHODOLOGICAL TRENDS 28
Chapter 1 Econometrics of Event Studies 30
Abstract 31
Keywords 31
1. Introduction and background 32
2. The event study literature: basic facts 33
3. Characterizing event study methods 35
4. Long-horizon event studies 47
References 59
Chapter 2 Self-Selection Models in Corporate Finance 64
Abstract 66
Keywords 66
Introduction 67
I. MODELING SELF-SELECTION 68
1. Self-selection: The statistical issue 69
2. The baseline Heckman selection model 69
3. Extensions 74
4. Matching models and self-selection 78
5. Panel data with fixed effects 83
6. Bayesian self-selection models 84
II. EMPIRICAL APPLICATIONS 86
7. Event studies 86
8. The pricing of public debt offerings 91
9. Other investment banking applications 95
10. Diversification discount 98
11. Other applications of selection models 102
12. Other applications of matching methods 105
13. Bayesian methods 107
14. Conclusions 110
References 110
Chapter 3 Auctions in Corporate Finance 114
Abstract 115
Keywords 115
1. Introduction 116
2. The most basic theory: Independent private values 117
3. Common-value auctions 130
4. Applications of auction theory to corporate finance 136
5. Conclusion 165
References 167
Chapter 4 Behavioral Corporate Finance 172
Abstract 173
Keywords 173
1. Introduction 174
2. The irrational investors approach 175
3. The irrational managers approach 195
4. Conclusion 204
References 205
PART 2 BANKING, PUBLIC OFFERINGS, AND PRIVATE SOURCES OF CAPITAL 214
Chapter 5 Banks in Capital Markets 216
Abstract 217
Keywords 217
1. Introduction 218
2. Commercial banks as underwriters: Theoretical literature 219
3. Empirical evidence on confiicts of interest 222
4. Empirical evidence on competition between commercial and investment banks 234
5. International evidence 238
6. The indirect role of commercial banks on capital markets 241
7. Extensions 248
8. Concluding remarks 253
References 254
Chapter 6 Security Offerings 260
Abstract 262
Keywords 262
1. Introduction 263
2. The security offering process 265
3. Flotation costs 288
4. The flotation method choice 325
5. Security offerings and market timing 357
6. Conclusions and issues for future research 382
References 388
Chapter 7 IPO Underpricing 402
Abstract 403
Keywords 404
1. Introduction 405
2. Evidence of underpricing 408
3. Asymmetric information models 411
4. Institutional explanations 429
5. Ownership and control 435
6. Behavioral explanations 439
7. Concluding remarks 444
References 445
Chapter 8 Conglomerate Firms and Internal Capital Markets 450
Abstract 451
Keywords 451
1. Introduction 452
2. The conglomerate discount 453
3. Theory explaining the conglomerate discount and organizational form 463
4. Investment decisions of conglomerate firms 477
5. Conclusions: What have we learned? 498
References 504
Chapter 9 Venture Capital 508
Abstract 509
Keywords 509
1. Introduction 510
2. The development of the venture capital industry 511
3. The venture capital investment process 517
4. Venture investing and innovation 530
5. What we don’t know about venture capital 532
References 534
Author Index 538
Subject Index 554
PART 3 DIVIDENDS, CAPITAL STRUCTURE, AND FINANCIAL DISTRESS 560
Chapter 10 Payout Policy 562
Abstract 563
Keywords 564
1. Introduction 565
2. The Miller and Modigliani irrelevance propositions 568
3. Dividends and taxes 569
4. Agency relationships and dividend policy 585
5. Asymmetric information and payout policy 595
6. Share repurchases 603
7. Alternative theories and new stylized facts 606
8. Conclusion 607
References 609
Chapter 11 Taxes and Corporate Finance 618
Abstract 619
Keywords 619
1. Introduction 620
2. Taxes and capital structure—the U.S. tax system 621
3. Taxes and capital structure—international tax issues 649
4. Taxes, LBOs, corporate restructuring, and organizational form 659
5. Taxes and payout policy 664
6. Taxes and compensation policy 671
7. Taxes, corporate risk management, and earnings management 677
8. Tax shelters 679
9. Summary and suggestions for future research 680
References 683
Chapter 12 Trade-off and Pecking Order Theories of Debt 694
Abstract 695
Keywords 695
1. Introduction 696
2. Theory 698
3. Evidence 714
4. Conclusion 753
5. Appendix: the stylized facts 754
References 756
Chapter 13 Capital Structure and Corporate Strategy 762
Abstract 763
1. Introduction 764
2. Endogeneity 766
3. The determinants of capital structure choice 767
4. Conclusion 790
References 792
Chapter 14 Bankruptcy and the Resolution of Financial Distress 794
Abstract 795
Keywords 795
1. Introduction 796
2. Theoretical framework 797
3. Asset restructuring 804
4. Debt workouts 808
5. Governance of distressed firms 813
6. Bankruptcy costs 819
7. The success of chapter 11 reorganization 824
8. International evidence 829
9. Conclusion 839
References 840
PART 4 TAKEOVERS, RESTRUCTURINGS, AND MANAGERIAL INCENTIVES 848
Chapter 15 Corporate Takeovers 850
Abstract 852
Keywords 852
1. Introduction 853
2. Takeover activity 856
3. Bidding strategies 876
4. Takeover gains 917
5. Bondholders, executives, and arbitrageurs 939
6. Takeovers, competition and antitrust 948
7. Summary and conclusions 962
References 975
Chapter 16 Corporate Restructuring: Breakups and LBOs 990
Abstract 991
Keywords 992
1. Introduction 993
2. Restructurings and the boundaries of the firm 994
3. Divestitures 998
4. Spinoffs 1005
5. Equity carveouts 1014
6. Tracking stocks 1020
7. Leveraged recapitalizations 1023
8. Leveraged buyouts (LBO) 1027
9. Conclusions 1044
References 1045
Chapter 17 Executive Compensation and Incentives 1056
Abstract 1057
Keywords 1057
1. Introduction 1058
2. Trends in executive compensation 1059
3. Incentives and agency 1067
4. Relative performance evaluation 1076
5. Do incentives influence firm performance? 1078
6. Alternatives to the agency view 1086
7. Conclusion 1092
References 1093
Chapter 18 Managing Corporate Risk 1098
Abstract 1099
Keywords 1099
1. Introduction 1100
2. Risk exposures and hedging 1100
3. Benefits of risk management 1103
4. The costs of risk management 1109
5. Evidence on corporate hedging 1110
6. Conclusion 1113
References 1114
Author Index 1116
Subject Index 1128

Textauszug

Chapter 1

Econometrics of Event Studies*

S.P. [e-mail]    Sloan School of Management, E52-325, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, MA 02142, USA

Jerold B. [e-mail]    William E. Simon Graduate School of Business Administration, University of Rochester, Rochester, NY 14627-0107, USA

Abstract

The number of published event studies exceeds 500, and the literature continues to grow. We provide an overview of event study methods. Short-horizon methods are quite reliable. While long-horizon methods have improved, serious limitations remain. A challenge is to continue to refine long-horizon methods. We present new evidence illustrating that properties of event study methods can vary by calendar time period and can depend on event sample firm characteristics such as volatility. This reinforces the importance of using stratified samples to examine event study statistical properties.

Keywords

event study

abnormal returns

short-horizon tests

long-horizon tests

cross-sectional tests

risk adjustment

Contents

Abstract   4

Keywords   4

1. Introduction and background   5

2. The event study literature: basic facts   6

2.1. The stock and flow of event studies   6

2.2. Changes in event study methods: the big picture   8

3. Characterizing event study methods   8

3.1. An event study: the model   8

3.2. Statistical and economic hypotheses   9

3.2.1. Cross-sectional aggregation   9

3.2.2. Time-series aggregation   10

3.3. Sampling distributions of test statistics   10

3.4. Criteria for “reliable” event study tests   12

3.5. Determining specification and power   12

3.5.1. The joint-test problem   12

3.5.2. Brown–Warner simulation   13

3.5.3. Analytical methods   13

3.6. A quick summary of our knowledge   14

3.6.1. Qualitative properties   14

3.6.2. Quantitative results   15

3.6.3. Volatility   16

3.6.4. Results   17

3.7. Cross-sectional tests   19

4. Long-horizon event studies   20

4.1. Background   20

4.2. Risk adjustment and expected returns   21

4.2.1. Errors in risk adjustment   22

4.2.2. Model for expected returns   22

4.3. Approaches to abnormal performance measurement   23

4.3.1. BHAR approach   23

4.3.2. Jensen-alpha approach   24

4.4. Significance tests for BHAR and Jensen-alpha measures   26

4.4.1. Skewness   27

4.4.2. Cross-correlation   27

4.4.3. The bottom line   32

References   32

1 Introduction and background

This chapter focuses on the design and statistical properties of event study methods. Event studies examine the behavior of firms’ stock prices around corporate events.1 A vast literature on event studies written over the past several decades has become an important part of financial economics. Prior to that time, “there was little evidence on the central issues of corporate finance. Now we are overwhelmed with results, mostly from event studies” (Fama, 1991, p. 1600). In a corporate context, the usefulness of event studies arises from the fact that the magnitude of abnormal performance at the time of an event provides a measure of the (unanticipated) impact of this type of event on the wealth of the firms’ claimholders. Thus, event studies focusing on announcement effects for a short-horizon around an event provide evidence relevant for understanding corporate policy decisions.

Event studies also serve an important purpose in capital market research as a way of testing market efficiency. Systematically nonzero abnormal security returns that persist after a particular type of corporate event are inconsistent with market efficiency. Accordingly, event studies focusing on long-horizons following an event can provide key evidence on market efficiency (Brown and Warner, 1980; Fama, 1991).

Beyond financial economics, event studies are useful in related areas. For example, in the accounting literature, the effect of earnings announcements on stock prices has received much attention. In the field of law and economics, event studies are used to examine the effect of regulation, as well as to assess damages in legal liability cases.

The number of published event studies easily exceeds 500 (see Section 2), and continues to grow. A second and parallel literature, which concentrates on the methodology of event studies, began in the 1980s. Dozens of papers have now explicitly studied statistical properties of event study methods. Both literatures are mature.

From the methodology papers, much is known about how to do—and how not to do—an event study. While the profession’s thinking about event study methods has evolved over time, there seems to be relatively little controversy about statistical properties of event study methods. The conditions under which event studies provide information and permit reliable inferences are well-understood.

This chapter highlights key econometric issues in event study methods, and summarizes what we know about the statistical design and the interpretation of event study experiments. Based on the theoretical and empirical findings of the methodology literature, we provide clear guidelines both for producers and consumers of event studies. Rather than provide a comprehensive survey of event study methods, we seek to sift through and synthesize existing work on the subject. We provide many references and borrow heavily from the contributions of published papers. Two early papers that cover a wide range of issues are by Brown and Warner (1980, 1985). More recently, an excellent chapter in the textbook of Campbell, Lo, and MacKinlay (1997) is a careful and broad outline of key research design issues. These standard references are recommended reading, but predate important advances in our understanding of event study methods, in particular on long horizon methods. We provide an updated and much needed overview, and include a bit of new evidence as well.

Although much emphasis will be on the statistical issues, we do not view our mission as narrowly technical. As financial economists, our ultimate interest is in how to best specify and test interesting economic hypotheses using event studies. Thus, the econometric and economic issues are interrelated, and we will try to keep sight of the interrelation.

In Section 2, we briefly review the event study literature and describe the changes in event study methodology over time. In Section 3 we discuss how to use events studies to test economic hypotheses. We also characterize the properties of the event study tests and how these properties depend on variables such as security volatility, sample size, horizon length, and the process generating abnormal returns. Section 4 is devoted to issues most likely encountered when conducting long-horizon event studies. The main issues are risk adjustment, cross-correlation in returns, and changes in volatility during the event period.

2 The event study literature: basic facts

2.1 The stock and flow of event studies

To quantify the enormity of the event study literature, we conducted a census of event studies published in 5 leading journals: the Journal of Business (JB), Journal of Finance (JF), Journal of Financial Economics (JFE), Journal of Financial and...

Produkt-Details

• Erscheint lt. Verlag: 23.12.2008
• Sprache: englisch
• Themenwelt: Recht / Steuern ► Wirtschaftsrecht
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Themenwelt: Betriebswirtschaft / Management ► Spezielle Betriebswirtschaftslehre ► Bankbetriebslehre
• Themenwelt: Wirtschaft ► Volkswirtschaftslehre
• ISBN-10: 0-08-055956-5 / 0080559565
• ISBN-13: 978-0-08-055956-8 / 9780080559568