The Journal of Finance

Market Timing and Managerial Portfolio Decisions

Published: 08/12/2005   |   DOI: 10.1111/j.1540-6261.2005.00783.x

DIRK JENTER

This paper provides evidence that top managers have contrarian views on firm value. Managers' perceptions of fundamental value diverge systematically from market valuations, and perceived mispricing seems an important determinant of managers' decision making. Insider trading patterns shows that low valuation firms are regarded as undervalued by their own managers relative to high valuation firms. This finding is robust to controlling for noninformation motivated trading. Further evidence links managers' private portfolio decisions to changes in corporate capital structures, suggesting that managers try to actively time the market both in their private trades and in firm‐level decisions.

CEO Turnover and Relative Performance Evaluation

Published: 05/01/2015   |   DOI: 10.1111/jofi.12282

DIRK JENTER, FADI KANAAN

This paper shows that CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks from firm performance before deciding on CEO retention. Using a hand‐collected sample of 3,365 CEO turnovers from 1993 to 2009, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry and, to a lesser extent, after bad market performance. A decline in industry performance from the 90th to the 10th percentile doubles the probability of a forced CEO turnover.

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.

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.