In our paper, Merger Negotiations with Stock Market Feedback, forthcoming in the Journal of Finance, we investigate whether pre-bid target stock price runups increase bidder takeover costs—an issue of first-order importance for the efficiency of the takeover mechanism. We base our predictions on a simple model with rational market participants and synergistic takeovers. Takeover signals (rumors) received by the market cause market anticipation of deal synergies that drive stock price runups. The model delivers the equilibrium pricing relation between the runup and the subsequent offer price markup (the surprise effect of the bid announcement) that should exist in a sample of observed bids.
Posts Tagged ‘Karin Thorburn’
In our paper, Are Stock-Financed Takeovers Opportunistic?, which was recently made publicly available on SSRN, we present significant new empirical evidence relevant to the ongoing controversy over whether bidder shares in stock-financed mergers are overpriced. The extant literature is split on this issue, with some studies suggesting that investor misvaluation plays an important role in driving stock-financed mergers—especially during periods of high market valuations and merger waves. Others maintain the neoclassical view of merger activity where takeover synergies emanate from industry-specific productivity shocks. This debate is important because opportunities for selling overpriced bidder shares may result in the most overvalued rather than the most efficient bidder winning the target—distorting corporate resource allocation through the takeover market.
To what extent are CEOs filing for bankruptcy tainted by the bankruptcy event? On the one hand, the CEO bears a major responsibility for the firm going broke. After all, the filing might have been avoided if the CEO had managed to reduce firm leverage or otherwise reorganize debt claims in time to stay out of court. On the other hand, CEOs going through bankruptcy likely gain valuable experience from the crisis. The net impact of these two opposing effects on executive reputation is an open empirical question.
In the paper, How Costly is Corporate Bankruptcy for Top Executives?, which was recently made publicly available on SSRN, we provide some first systematic estimates of top executives’ personal costs of corporate bankruptcy. The estimates are based on 324 large public companies filing for Chapter 11 bankruptcy over the past two decades.
The study provides evidence on the following three questions. First, do top executives experience large personal losses (both income and wealth) when filing for bankruptcy? Second, do creditor control rights influence the probability of CEO departure and the income losses? Third, do ex ante predicted personal losses affect CEO’s decision to leave the firm and their compensation contract design?