The Journal of Finance

Efficiency Gains in Unsuccessful Management Buyouts

Published: 06/01/1994   |   DOI: 10.1111/j.1540-6261.1994.tb05155.x

ELI OFEK

This article uses a sample of 120 unsuccessful management buyouts (MBOs) to test whether operational improvements following successful MBOs are a result of organizational changes or private information. The findings are consistent with the organizational changes hypothesis. Firms with an unsuccessful MBO had no increase in operating performance following the buyout attempt. In addition, the cumulative abnormal stock return from before the attempted buyout until two years after the attempt is insignificantly different from 0 percent. I also find that management turnover following an unsuccessful MBO is significantly higher than normal.

DotCom Mania: The Rise and Fall of Internet Stock Prices

Published: 05/06/2003   |   DOI: 10.1111/1540-6261.00560

Eli Ofek, Matthew Richardson

This paper explores a model based on agents with heterogenous beliefs facing short sales restrictions, and its explanation for the rise, persistence, and eventual fall of Internet stock prices. First, we document substantial short sale restrictions for Internet stocks. Second, using data on Internet holdings and block trades, we show a link between heterogeneity and price effects for Internet stocks. Third, arguing that lockup expirations are a loosening of the short sale constraint, we document average, long‐run excess returns as low as −33 percent for Internet stocks postlockup. We link the Internet bubble burst to the unprecedented level of lockup expirations and insider selling.

Taking Stock: Equity‐Based Compensation and the Evolution of Managerial Ownership

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00250

Eli Ofek, David Yermack

We investigate the impact of stock‐based compensation on managerial ownership. We find that equity compensation succeeds in increasing incentives of lower‐ownership managers, but higher‐ownership managers negate much of its impact by selling previously owned shares. When executives exercise options to acquire stock, nearly all of the shares are sold. Our results illuminate dynamic aspects of managerial ownership arising from divergent goals of boards of directors, who use equity compensation for incentives, and managers, who respond by selling shares for diversification. The findings cast doubt on the frequent and important theoretical assumption that managers cannot hedge the risks of these awards.

Bustup Takeovers of Value‐Destroying Diversified Firms

Published: 09/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb04066.x

PHILIP G. BERGER, ELI OFEK

We examine whether the value loss from diversification affects takeover and breakup probabilities. We estimate diversification's value effect by imputing stand‐alone values for individual business segments and find that firms with greater value losses are more likely to be taken over. Moreover, those acquired firms whose losses are greatest are most likely to be bought by LBO associations, which frequently break up their targets. For a subsample of large diversified targets: (1) higher value losses increase the extent of post‐takeover bustup; and (2) post‐takeover bustup generally results in divested divisions being operated as part of a focused, stand‐alone firm.

Managerial Entrenchment and Capital Structure Decisions

Published: 04/18/2012   |   DOI: 10.1111/j.1540-6261.1997.tb01115.x

PHILIP G. BERGER, ELI OFEK, DAVID L. YERMACK

We study associations between managerial entrenchment and firms' capital structures, with results generally suggesting that entrenched CEOs seek to avoid debt. In a cross‐sectional analysis, we find that leverage levels are lower when CEOs do not face pressure from either ownership and compensation incentives or active monitoring. In an analysis of leverage changes, we find that leverage increases in the aftermath of entrenchment‐reducing shocks to managerial security, including unsuccessful tender offers, involuntary CEO replacements, and the addition to the board of major stockholders.