The Journal of Finance

Product Market Imperfections and Loan Commitments

Published: 12/01/1990   |   DOI: 10.1111/j.1540-6261.1990.tb03733.x

VOJISLAV MAKSIMOVIC

I show in a model of competitive banks that the characteristics of loan contracts are affected by product market imperfections in the borrower's industry. A bank loan commitment increases the value of a borrower firm operating in an imperfectly competitive industry and thus dominates a simple loan even in the absence of risk sharing considerations and informational asymmetries between the borrower and the bank. While it is individually rational for a firm to obtain a loan commitment, all the firms in that industry taken together are made worse off by the existence of loan commitments.

Debt and Input Misallocation

Published: 07/01/1990   |   DOI: 10.1111/j.1540-6261.1990.tb05106.x

MOSHE KIM, VOJISLAV MAKSIMOVIC

We investigate a class of agency costs of debt that arise because debt financing affects the firm's incentives to use inputs efficiently. A methodology for estimating this class of costs is presented and applied to a major industry, air transport. Our results are consistent with agency models that predict a decrease in efficiency as the debt increases. A part of the loss of efficiency that we identify is attributable to the greater use by levered firms of inputs that can be monitored and are collateralizable.

Do Conglomerate Firms Allocate Resources Inefficiently Across Industries? Theory and Evidence

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00440

Vojislav Maksimovic, Gordon Phillips

We develop a profit‐maximizing neoclassical model of optimal firm size and growth across different industries based on differences in industry fundamentals and firm productivity. In the model, a conglomerate discount is consistent with profit maximization. The model predicts how conglomerate firms will allocate resources across divisions over the business cycle and how their responses to industry shocks will differ from those of single‐segment firms. Using plant level data, we find that growth and investment of conglomerate and single‐segment firms is related to fundamental industry factors and individual segment level productivity. The majority of conglomerate firms exhibit growth across industry segments that is consistent with optimal behavior.

Issue Size Choice and “Underpricing” in Thrift Mutual‐to‐Stock Conversions

Published: 12/01/1993   |   DOI: 10.1111/j.1540-6261.1993.tb05124.x

VOJISLAV MAKSIMOVIC, HALUK UNAL

Issue size choice and underpricing in mutual‐to‐stock conversions of thrifts are explained as a function of growth opportunities, perquisite consumption, and proprietary information. We provide evidence that thrifts with greater growth opportunities choose larger issue size and experience higher after‐market price appreciation. This finding persists when we allow for investors' inferences about managers' proprietary information. Variables that explain underpricing in typical initial public offerings are significant by themselves but lose significance when combined with the issue size choice variables. Managerial holdings and the offer price do not act as dissipative signals of value in thrift conversions.

Debt, Agency Costs, and Industry Equilibrium

Published: 12/01/1991   |   DOI: 10.1111/j.1540-6261.1991.tb04637.x

VOJISLAV MAKSIMOVIC, JOSEF ZECHNER

We show that risk characteristics of projects' cash flows are endogenously determined by the investment decisions of all firms in an industry. As a result, in reasonable settings, financial structures which create incentives to expropriate debtholders by increasing risk are shown not to reduce value in an industry equilibrium. Without taxes, capital structure is irrelevant for individual firms despite its effect on the equityholders' incentives, but the maximum total amount of debt in the industry is determinate. Allowing for a corporate tax advantage of debt, capital structure becomes relevant but firms are indifferent between distinct alternative debt levels.

Asset Efficiency and Reallocation Decisions of Bankrupt Firms

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00063

VOJISLAV MAKSIMOVIC, GORDON PHILLIPS

This paper investigates whether Chapter 11 bankruptcy provides a mechanism by which insolvent firms are efficiently reorganized and the assets of unproductive firms are effectively redeployed. We argue that incentives to reorganize depend on the level of demand and industry conditions. Using plant‐level data, we find that Chapter 11 status is much less important than industry conditions in explaining the productivity, asset sales, and closure conditions of Chapter 11 bankrupt firms. This suggests that firms that elect to enter into Chapter 11 incur few real economic costs.

The Industry Life Cycle, Acquisitions and Investment: Does Firm Organization Matter?

Published: 04/01/2008   |   DOI: 10.1111/j.1540-6261.2008.01328.x

VOJISLAV MAKSIMOVIC, GORDON PHILLIPS

We examine the effect of industry life‐cycle stages on within‐industry acquisitions and capital expenditures by conglomerates and single‐segment firms controlling for endogeneity of organizational form. We find greater differences in acquisitions than in capital expenditures, which are similar across organizational types. In particular, 36% of the growth recorded by conglomerate segments in growth industries comes from acquisitions, versus 9% for single‐segment firms. In growth industries, the effect of financial dependence on acquisitions and plant openings is mitigated for conglomerate firms. Plants acquired by conglomerate firms increase in productivity. The results suggest that organizational forms' comparative advantages differ across industry conditions.

The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00398

Vojislav Maksimovic, Gordon Phillips

We analyze the market for corporate assets. There is an active market for corporate assets, with close to seven percent of plants changing ownership annually through mergers, acquisitions, and asset sales in peak expansion years. The probability of asset sales and whole‐firm transactions is related to firm organization and ex ante efficiency of buyers and sellers. The timing of sales and the pattern of efficiency gains suggests that the transactions that occur, especially through asset sales of plants and divisions, tend to improve the allocation of resources and are consistent with a simple neoclassical model of profit maximizing by firms.

Law, Finance, and Firm Growth

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00084

Asli Demirgüç-Kunt, Vojislav Maksimovic

We investigate how differences in legal and financial systems affect firms' use of external financing to fund growth. We show that in countries whose legal systems score high on an efficiency index, a greater proportion of firms use long‐term external financing. An active, though not necessarily large, stock market and a large banking sector are also associated with externally financed firm growth. The increased reliance on external financing occurs in part because established firms in countries with well‐functioning institutions have lower profit rates. Government subsidies to industry do not increase the proportion of firms relying on external financing.

Private and Public Merger Waves

Published: 04/12/2013   |   DOI: 10.1111/jofi.12055

VOJISLAV MAKSIMOVIC, GORDON PHILLIPS, LIU YANG

We document that public firms participate more than private firms as buyers and sellers of assets in merger waves and their participation is affected more by credit spreads and aggregate market valuation. Public firm acquisitions realize higher gains in productivity, particularly for on‐the‐wave acquisitions and when the acquirer's stock is liquid and highly valued. Our results are not driven solely by public firms' better access to capital. Using productivity data from early in the firm's life, we find that better private firms subsequently select to become public. Initial size and productivity predict asset purchases and sales 10 and more years later.

Comment on Forward Markets, Stock Markets, and the Theory of the Firm

Published: 06/01/1989   |   DOI: 10.1111/j.1540-6261.1989.tb05072.x

VOJISLAV MAKSIMOVIC, GORDON SICK, JOSEF ZECHNER

In a recent article, MacMinn [5] argues that the presence of forward markets eliminates the incentives of the firm's manager to choose production levels that maximize firm value. In this comment, we show that his results do not depend on the presence of forward markets. The critical assumptions are that the manager is endowed with money rather than stock in the firm and that there is no competitive labor market for managers. In addition, his results require time‐inconsistent behavior on the part of the firm's manager.

Financial and Legal Constraints to Growth: Does Firm Size Matter?

Published: 07/20/2005   |   DOI: 10.1111/j.1540-6261.2005.00727.x

THORSTEN BECK, ASLI DEMIRGÜÇ‐KUNT, VOJISLAV MAKSIMOVIC

Using a unique firm‐level survey database covering 54 countries, we investigate the effect of financial, legal, and corruption problems on firms' growth rates. Whether these factors constrain growth depends on firm size. It is consistently the smallest firms that are most constrained. Financial and institutional development weakens the constraining effects of financial, legal, and corruption obstacles and it is again the small firms that benefit the most. There is only a weak relation between firms' perception of the quality of the courts in their country and firm growth. We also provide evidence that the corruption of bank officials constrains firm growth.

Capital Structures in Developing Countries

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00320

Laurence Booth, Varouj Aivazian, Asli Demirguc‐Kunt, Vojislav Maksimovic

This study uses a new data set to assess whether capital structure theory is portable across countries with different institutional structures. We analyze capital structure choices of firms in 10 developing countries, and provide evidence that these decisions are affected by the same variables as in developed countries. However, there are persistent differences across countries, indicating that specific country factors are at work. Our findings suggest that although some of the insights from modern finance theory are portable across countries, much remains to be done to understand the impact of different institutional features on capital structure choices.