The Journal of Finance

How Target Shareholders Benefit from Value‐Reducing Defensive Strategies in Takeovers

Published: 3/1990,  Volume: 45,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1990.tb05084.x  |  Cited by: 48

ELAZAR BERKOVITCH, NAVEEN KHANNA

This paper shows that target shareholders can be made better off through the use of certain types of defensive strategies that reduce the value of the target by different amounts for different bidders. In many cases, simply the threat of such strategies can make target shareholders better off. Therefore, empirical tests based on stock price reactions at the adoption of defensive strategies may be underestimating the effect of such strategies. The paper also identifies the necessary characteristics that make these strategies effective and shows that many observed defenses possess similar properties.

The Bright Side of Internal Capital Markets

Published: 8/2001,  Volume: 56,  Issue: 4  |  DOI: 10.1111/0022-1082.00377  |  Cited by: 206

Naveen Khanna, Sheri Tice

We examine capital expenditure decisions of discount firms in response to WalMart's entry into their markets. Before WalMart's entry, focused incumbents and discount divisions of diversified incumbents are similar in size, geographic dispersion, and firm debt levels. However, discount divisions of diversified firms are significantly more productive. After WalMart's entry, diversified firms are quicker to either exit the discount business or stay and fight. Also, their capital expenditures are more sensitive to the productivity of their discount business. Internal capital markets function well, as transfers are away from the worsening discount divisions. It appears diversified firms make better investment decisions.

Insider Trading in Financial Signaling Models

Published: 12/1992,  Volume: 47,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1992.tb04688.x  |  Cited by: 26

MARK BAGNOLI, NAVEEN KHANNA

We study the impact of voluntary trade by the manager. We find that, in contrast to standard signaling models, an action is good news for some firms and bad news for others, depending on observable characteristics of the firm, its managers, and their compensation plans. Further, voluntary trade eliminates separating equilibria and thus the possibility of exactly inferring the manager's private information. This may cause the manager to take inefficient actions so as to earn trading profits. Such undesirable behavior can be more effectively constrained by compensation contracts based on phantom shares or nontradeable options instead of large stockholdings.

Managers of Financially Distressed Firms: Villains or Scapegoats?

Published: 7/1995,  Volume: 50,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1995.tb04042.x  |  Cited by: 104

NAVEEN KHANNA, ANNETTE B. POULSEN

In this article, we provide evidence concerning the extent to which managers are to blame when their firms become bankrupt. We study a sample of firms that file for Chapter 11 and determine the actions taken by the firms' managers during the three‐year period before the filing. We compare the sample with a control sample of firms that performed better. We suggest that the comparison provides evidence on the way managers act as their firms sink into financial trouble and whether financial distress is the result of incompetence or excessively self‐serving managerial decisions or due to factors outside of management's control. We find that managers of the Chapter 11 firms and the control firms make very similar decisions and that, on average, neither set of managers is perceived to be taking value‐reducing actions. These results do not change when we control for managerial turnover or managerial ownership. We also find that when managers are replaced in firms that eventually file for Chapter 11 protection, the market does not respond positively, regardless of whether the new managers are from inside or outside the firm. Our findings suggest that when managers are blamed for financial distress, they are serving as scapegoats.

Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups

Published: 4/2000,  Volume: 55,  Issue: 2  |  DOI: 10.1111/0022-1082.00229  |  Cited by: 1923

Tarun Khanna, Krishna Palepu

Emerging markets like India have poorly functioning institutions, leading to severe agency and information problems. Business groups in these markets have the potential both to offer benefits to member firms, and to destroy value. We analyze the performance of affiliates of diversified Indian business groups relative to unaffiliated firms. We find that accounting and stock market measures of firm performance initially decline with group diversification and subsequently increase once group diversification exceeds a certain level. Unlike U.S. conglomerates' lines of business, and similar to the affiliates of U.S. LBO associations, affiliates of the most diversified business groups outperform unaffiliated firms.

Choosing to Disagree: Endogenous Dismissiveness and Overconfidence in Financial Markets

Published: 2/18/2024,  Volume: 79,  Issue: 2  |  DOI: 10.1111/jofi.13311  |  Cited by: 26

SNEHAL BANERJEE, JESSE DAVIS, NAVEEN GONDHI

The psychology literature documents that individuals derive current utility from their beliefs about future events. We show that, as a result, investors in financial markets choose to disagree about both private information and price information. When objective price informativeness is low, each investor dismisses the private signals of others and ignores price information. In contrast, when prices are sufficiently informative, heterogeneous interpretations arise endogenously: most investors ignore prices, while the rest condition on it. Our analysis demonstrates how observed deviations from rational expectations (e.g., dismissiveness, overconfidence) arise endogenously, interact with each other, and vary with economic conditions.

CEO Connectedness and Corporate Fraud

Published: 5/11/2015,  Volume: 70,  Issue: 3  |  DOI: 10.1111/jofi.12243  |  Cited by: 626

VIKRAMADITYA KHANNA, E. HAN KIM, YAO LU

We find that connections CEOs develop with top executives and directors through their appointment decisions increase the risk of corporate fraud. Appointment‐based CEO connectedness in executive suites and boardrooms increases the likelihood of committing fraud and decreases the likelihood of detection. Additionally, it decreases the expected costs of fraud by helping conceal fraudulent activity, making CEO dismissal less likely upon discovery, and lowering the coordination costs of carrying out illegal activity. Connections based on network ties through past employment, education, or social organization memberships have insignificant effects on fraud. Appointment‐based CEO connectedness warrants attention from regulators, investors, and corporate governance specialists.

Role of Managerial Incentives and Discretion in Hedge Fund Performance

Published: 9/28/2009,  Volume: 64,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2009.01499.x  |  Cited by: 465

VIKAS AGARWAL, NAVEEN D. DANIEL, NARAYAN Y. NAIK

Using a comprehensive hedge fund database, we examine the role of managerial incentives and discretion in hedge fund performance. Hedge funds with greater managerial incentives, proxied by the delta of the option‐like incentive fee contracts, higher levels of managerial ownership, and the inclusion of high‐water mark provisions in the incentive contracts, are associated with superior performance. The incentive fee percentage rate by itself does not explain performance. We also find that funds with a higher degree of managerial discretion, proxied by longer lockup, notice, and redemption periods, deliver superior performance. These results are robust to using alternative performance measures and controlling for different data‐related biases.