The Journal of Finance

Risk, Reputation, and IPO Price Support

Published: 03/09/2006   |   DOI: 10.1111/j.1540-6261.2006.00850.x

KATHARINA LEWELLEN

Immediately following an initial public offering, underwriters often repurchase shares of poorly performing offerings in an apparent attempt to stabilize the price. Using proprietary Nasdaq data, I study the price effects and determinants of price support. Some of the key findings are (1) Stabilization is substantial, inducing price rigidity at and below the offer price; (2) I find no evidence that stocks with larger information asymmetries are stabilized more strongly; (3) Larger underwriters stabilize more, perhaps to protect their reputations with investors; and (4) Investment banks with retail brokerage operations stabilize much more than other banks, inconsistent with the view that stabilization benefits primarily institutional investors.

CEO Preferences and Acquisitions

Published: 05/01/2015   |   DOI: 10.1111/jofi.12283

DIRK JENTER, KATHARINA LEWELLEN

This paper explores the impact of target CEOs’ retirement preferences on takeovers. Using retirement age as a proxy for CEOs’ private merger costs, we find strong evidence that target CEOs’ preferences affect merger activity. The likelihood of receiving a successful takeover bid is sharply higher when target CEOs are close to age 65. Takeover premiums and target announcement returns are similar for retirement‐age and younger CEOs, implying that retirement‐age CEOs increase firm sales without sacrificing premiums. Better corporate governance is associated with more acquisitions of firms led by young CEOs, and with a smaller increase in deals at retirement age.

Institutional Investors and Corporate Governance: The Incentive to Be Engaged

Published: 10/06/2021   |   DOI: 10.1111/jofi.13085

JONATHAN LEWELLEN, KATHARINA LEWELLEN

This paper studies institutional investors’ incentives to be engaged shareholders. In 2017, the average institution gains an extra $129,000 in annual management fees if a stockholding increases 1% in value, considering both the direct effect on assets under management and the indirect effect on subsequent fund flows. The estimates range from $19,600 for investments in small firms to $307,600 for investments in large firms. Institutional shareholders in one firm often gain when the firm's competitors do well, by virtue of institutions’ holdings in those firms, but the impact of common ownership is modest in the most concentrated industries.

Investment Decisions of Nonprofit Firms: Evidence from Hospitals

Published: 11/24/2014   |   DOI: 10.1111/jofi.12234

MANUEL ADELINO, KATHARINA LEWELLEN, ANANT SUNDARAM

This paper examines investment choices of nonprofit hospitals. It tests how shocks to cash flows caused by the performance of the hospitals’ financial assets affect hospital expenditures. Capital expenditures increase, on average, by 10 to 28 cents for every dollar received from financial assets. The sensitivity is similar to that found earlier for shareholder‐owned corporations. Executive compensation, other salaries, and perks do not respond significantly to cash flow shocks. Hospitals with an apparent tendency to overspend on medical procedures do not exhibit higher investment‐cash flow sensitivities. The sensitivities are higher for hospitals that appear financially constrained.

Security Issue Timing: What Do Managers Know, and When Do They Know It?

Published: 03/21/2011   |   DOI: 10.1111/j.1540-6261.2010.01638.x

DIRK JENTER, KATHARINA LEWELLEN, JEROLD B. WARNER

We study put option sales on company stock by large firms. An often‐cited motivation for these transactions is market timing, and managers' decision to issue puts should be sensitive to whether the stock is undervalued. We provide new evidence that large firms successfully time security sales. In the 100 days following put option issues, there is roughly a 5% abnormal stock return, with much of the abnormal return following the first earnings release date after the sale. Direct evidence on put option exercises reinforces these findings: exercise frequencies and payoffs to put holders are abnormally low.