What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00477
Kathleen Fuller, Jeffry Netter, Mike Stegemoller
We study shareholder returns for firms that acquired five or more public, private, and/or subsidiary targets within a short time period. Since the same bidder chooses different types of targets and methods of payment, any variation in returns must be due to the characteristics of the target and the bid. Results indicate bidder shareholders gain when buying a private firm or subsidiary but lose when purchasing a public firm. Further, the return is greater the larger the target and if the bidder offers stock. These results are consistent with a liquidity discount, and tax and control effects in this market.
The Voluntary Restructuring of Large Firms In Response to Performance Decline
Published: 07/01/1992 | DOI: 10.1111/j.1540-6261.1992.tb03999.x
KOSE JOHN, LARRY H. P. LANG, JEFFRY NETTER
Much of the research on corporate restructuring has examined the causes and aftermath of extreme changes in corporate governance such as takeovers and bankruptcy. In contrast, we study restructurings initiated in response to product market pressures by “normal” corporate governance mechanisms. Such “voluntary” restructurings, motivated by the discipline of the product market and internal corporate controls, will play a relatively more important role in the 1990s due to a weakening in the discipline of the takeover market. Our data suggest that the firms retrenched quickly and, on average, increased their focus. There is no evidence of abnormally high levels of forced turnover in top managers. There is, however, a significant and rapid cut of 5% in the labor force. Further, the cost of goods sold to sales and labor costs to sales ratios both decline rapidly, more than 5% in the first two years after the negative earnings. The firms cut research and development, increased investment, and also reduced their debt/asset level by over 8% in the first year after the negative earnings. We also document the reasons management and analysis reported for the negative earnings. Overwhelmingly the firms blame bad economic conditions and, to a lesser extent, foreign competition.
Merging Markets
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00137
Tom Arnold, Philip Hersch, J. Harold Mulherin, Jeffry Netter
We study the causes and effects of the competition for order flow by U.S. regional stock exchanges. We trace the origins of competition for order flow to a change in the role of regional exchanges from being venues for listing local securities to being more direct competitors for the order flow of NYSE listings. We study the way regionals competed for order flow, concentrating on a series of stock‐exchange mergers that occurred in the midst of this transition of the regional exchanges. The merging exchanges attracted market share and experienced narrower bid‐ask spreads.
The Choice of Private Versus Public Capital Markets: Evidence from Privatizations
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00718.x
WILLIAM L. MEGGINSON, ROBERT C. NASH, JEFFRY M. NETTER, ANNETTE B. POULSEN
We examine the impact of political, institutional, and economic factors on the choice between selling a state‐owned enterprise in the public capital market through a share issue privatization (SIP) and selling it in the private capital market in an asset sale. SIPs are more likely in less developed capital markets, for more profitable state‐owned enterprises, and where there are more protections of minority shareholders. Asset sales are more likely when there is less state control of the economy and when the firm is smaller. Our results suggest the importance of privatization activities in developing the equity markets of privatizing countries.