The Journal of Finance

Divisional Managers and Internal Capital Markets

Published: 3/7/2013,  Volume: 68,  Issue: 2  |  DOI: 10.1111/jofi.12003  |  Cited by: 229

RAN DUCHIN, DENIS SOSYURA

Using hand‐collected data on divisional managers at S&P 500 firms, we study their role in internal capital budgeting. Divisional managers with social connections to the CEO receive more capital. Connections to the CEO outweigh measures of managers' formal influence, such as seniority and board membership, and affect both managerial appointments and capital allocations. The effect of connections on investment efficiency depends on the tradeoff between agency and information asymmetry. Under weak governance, connections reduce investment efficiency and firm value via favoritism. Under high information asymmetry, connections increase investment efficiency and firm value via information transfer.

Who Writes the News? Corporate Press Releases during Merger Negotiations

Published: 1/7/2014,  Volume: 69,  Issue: 1  |  DOI: 10.1111/jofi.12109  |  Cited by: 433

KENNETH R. AHERN, DENIS SOSYURA

Firms have an incentive to manage media coverage to influence their stock prices during important corporate events. Using comprehensive data on media coverage and merger negotiations, we find that bidders in stock mergers originate substantially more news stories after the start of merger negotiations, but before the public announcement. This strategy generates a short‐lived run‐up in bidders' stock prices during the period when the stock exchange ratio is determined, which substantially impacts the takeover price. Our results demonstrate that the timing and content of financial media coverage may be biased by firms seeking to manipulate their stock price.

Performance Changes Following Top Management Dismissals

Published: 9/1995,  Volume: 50,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1995.tb04049.x  |  Cited by: 684

DAVID J. DENIS, DIANE K. DENIS

We document that forced resignations of top managers are preceded by large and significant declines in operating performance and followed by large improvements in performance. However, forced resignations are rare and are due more often to external factors (e.g., blockholder pressure, takeover attempts, etc.) than to normal board monitoring. Following the management change, these firms significantly downsize their operations and are subject to a high rate of corporate control activity. Normal retirements are followed by small increases in operating income and are also subject to a slightly higher than normal incidence of postturnover corporate control activity.

Agency Problems, Equity Ownership, and Corporate Diversification

Published: 3/1997,  Volume: 52,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1997.tb03811.x  |  Cited by: 893

DAVID J. DENIS, DIANE K. DENIS, ATULYA SARIN

We provide evidence on the agency cost explanation for corporate diversification. We find that the level of diversification is negatively related to managerial equity ownership and to the equity ownership of outside blockholders. In addition, we report that decreases in diversification are associated with external corporate control threats, financial distress, and management turnover. These findings suggest that agency problems are responsible for firms maintaining value‐reducing diversification strategies and that the recent trend toward increased corporate focus is attributable to market disciplinary forces.

Global Diversification, Industrial Diversification, and Firm Value

Published: 10/2002,  Volume: 57,  Issue: 5  |  DOI: 10.1111/0022-1082.00485  |  Cited by: 735

David J. Denis, Diane K. Denis, Keven Yost

Using a sample of 44,288 firm‐ears between 1984 and 1997, we document an increase in the extent of global diversification over time. This trend does not reflect a substitution of global for industrial diversification. We also find that global diversification results in average valuation discounts of approximately the same magnitude as those for industrial diversification. Analysis of the changes in excess value associated with changes in diversification reveals that increases in global diversification reduce excess value, while reductions in global diversification increase excess value. These findings support the view that the costs of global diversification outweigh the benefits.

Defensive Changes in Corporate Payout Policy: Share Repurchases and Special Dividends

Published: 12/1990,  Volume: 45,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1990.tb03722.x  |  Cited by: 99

DAVID J. DENIS

This paper examines defensive payouts announced in response to hostile corporate control activity. The evidence indicates that the announcement of defensive share repurchases is associated with an average negative impact on the share price of the target firm. In contrast, special dividend payments generally increase the wealth of target firm shareholders. Regardless of payout type, those firms remaining independent after the outcome of the corporate control contest experience an abnormal share price increase over the duration of the contest. Among these firms there are substantial post‐contest changes in capital, asset, and ownership structure and abnormally high rates of top management turnover.

The Dynamics of Financially Constrained Arbitrage

Published: 7/20/2018,  Volume: 73,  Issue: 4  |  DOI: 10.1111/jofi.12689  |  Cited by: 94

DENIS GROMB, DIMITRI VAYANOS

We develop a model in which financially constrained arbitrageurs exploit price discrepancies across segmented markets. We show that the dynamics of arbitrage capital are self‐correcting: following a shock that depletes capital, returns increase, which allows capital to be gradually replenished. Spreads increase more for trades with volatile fundamentals or more time to convergence. Arbitrageurs cut their positions more in those trades, except when volatility concerns the hedgeable component. Financial constraints yield a positive cross‐sectional relationship between spreads/returns and betas with respect to arbitrage capital. Diversification of arbitrageurs across markets induces contagion, but generally lowers arbitrageurs' risk and price volatility.

Do Initial Public Offering Firms Purchase Analyst Coverage with Underpricing?

Published: 12/2004,  Volume: 59,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2004.00719.x  |  Cited by: 302

MICHAEL T. CLIFF, DAVID J. DENIS

We report that initial public offering (IPO) underpricing is positively related to analyst coverage by the lead underwriter and to the presence of an all‐star analyst on the research staff of the lead underwriter. These findings are robust to controls for other determinants of underpricing and to controls for the endogeneity of underpricing and analyst coverage. In addition, we find that the probability of switching underwriters between IPO and seasoned equity offering is negatively related to the unexpected amount of post‐IPO analyst coverage. These findings are consistent with the hypothesis that underpricing is, in part, compensation for expected post‐IPO analyst coverage from highly ranked analysts.

Agency Conflicts in Public and Negotiated Transfers of Corporate Control

Published: 4/2000,  Volume: 55,  Issue: 2  |  DOI: 10.1111/0022-1082.00222  |  Cited by: 121

Mike Burkart, Denis Gromb, Fausto Panunzi

We analyze control transfers in firms with a dominant minority blockholder and otherwise dispersed owners, and show that the transaction mode is important. Negotiated block trades preserve a low level of ownership concentration, inducing more inefficient extraction of private benefits. In contrast, public acquisitions increase ownership concentration, resulting in fewer private benefits and higher firm value. Within our model, the incumbent and new controlling party prefer to trade the block because of the dispersed shareholders' free‐riding behavior. We also explore the regulatory implications of this agency problem and its impact on the terms of block trades.

Corporate Events, Trading Activity, and the Estimation of Systematic Risk: Evidence From Equity Offerings and Share Repurchases

Published: 12/1994,  Volume: 49,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1994.tb04781.x  |  Cited by: 45

DAVID J. DENIS, GREGORY B. KADLEC

We investigate the relation between trading activity, the measurement of security returns, and the evolution of security prices by examining estimates of systematic risk surrounding equity offerings and share repurchases. In contrast to prior studies, we find no evidence of changes in systematic risk following either equity offerings or share repurchases after correcting for biases caused by infrequent trading and price adjustment delays. Moreover, changes in ordinary least squares beta estimates are significantly related to contemporaneous changes in trading activity. Our results have implications for studies interested in the properties of security returns, particularly those examining periods in which trading activity changes.

Conflicting Priorities: A Theory of Covenants and Collateral

Published: 4/9/2025,  Volume: 80,  Issue: 3  |  DOI: 10.1111/jofi.13445  |  Cited by: 10

JASON RODERICK DONALDSON, DENIS GROMB, GIORGIA PIACENTINO

We develop a theory of secured debt, unsecured debt, and debt with anti‐dilution covenants. We assume that, as in practice, covenants convey the right to accelerate if violated, but the new secured debt retains its priority even if issued in violation of covenants. We find that such covenants are nonetheless useful: They provide state‐contingent financing flexibility, balancing over‐ and underinvestment incentives. The optimal debt structure is multilayered, combining secured and unsecured debt with and without covenants. Our results are consistent with observations about debt structure, covenant violations, and waivers. They speak to a policy debate about debt priority.

Legal Investor Protection and Takeovers

Published: 5/8/2014,  Volume: 69,  Issue: 3  |  DOI: 10.1111/jofi.12142  |  Cited by: 37

MIKE BURKART, DENIS GROMB, HOLGER M. MUELLER, FAUSTO PANUNZI

This paper examines the role of legal investor protection for the efficiency of the market for corporate control when bidders are financially constrained. In the model, stronger legal investor protection increases bidders' outside funding capacity. However, absent effective bidding competition, this does not improve efficiency, as the bid price, and thus bidders' need for funds, increases one‐for‐one with the pledgeable income. In contrast, under effective competition for the target, the increased outside funding capacity improves efficiency by making it less likely that more efficient but less wealthy bidders are outbid by less efficient but wealthier rivals.

S&P 500 Index Additions and Earnings Expectations

Published: 9/11/2003,  Volume: 58,  Issue: 5  |  DOI: 10.1111/1540-6261.00589  |  Cited by: 287

Diane K. Denis, John J. McConnell, Alexei V. Ovtchinnikov, Yun Yu

AbstractStock price increases associated with addition to the S&P 500 Index have been interpreted as evidence that demand curves for stocks slope downward. A key premise underlying this interpretation is that Index inclusion provides no new information about companies' future prospects. We examine this premise by analyzing analysts' earnings per share (eps) forecasts around Index inclusion and by comparing postinclusion realized earnings to preinclusion forecasts. Relative to benchmark companies, companies newly added to the Index experience significant increases in eps forecasts and significant improvements in realized earnings. These results indicate that S&P Index inclusion is not an information‐free event.