The Journal of Finance

Information Effects Associated with Debt‐for‐Equity and Equity‐for‐Debt Exchange Offers

Published: 06/01/1989   |   DOI: 10.1111/j.1540-6261.1989.tb05065.x

MARCIA MILLON CORNETT, NICKOLAOS G. TRAVLOS

This study investigates the information effect caused by a firm's change in capital structure via debt‐for‐equity and equity‐for‐debt exchange offers. The evidence suggests that the former transactions lead to abnormal stock price increases, while the latter lead to abnormal stock price decreases. In addition, findings based on analysis of bond returns and cross‐sectional regressions do not lend support to the wealth‐transfer‐ and tax‐effect hypotheses, but they are consistent with the information‐effect hypothesis.

Corporate Takeover Bids, Methods of Payment, and Bidding Firms' Stock Returns

Published: 09/01/1987   |   DOI: 10.1111/j.1540-6261.1987.tb03921.x

NICKOLAOS G. TRAVLOS

This study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids. The results reveal significant differences in the abnormal returns between common stock exchanges and cash offers. The results are independent of the type of takeover bid, i.e., merger or tender offer, and of bid outcomes. These findings, supported by analysis of nonconvertible bonds, are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment.

Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions

Published: 06/01/1990   |   DOI: 10.1111/j.1540-6261.1990.tb03706.x

YAKOV AMIHUD, BARUCH LEV, NICKOLAOS G. TRAVLOS

We test the proposition that corporate control considerations motivate the means of investment financing—cash (and debt) or stock. Corporate insiders who value control will prefer financing investments by cash or debt rather than by issuing new stock which dilutes their holdings and increases the risk of losing control. Our empirical results support this hypothesis: in corporate acquisitions, the larger the managerial ownership fraction of the acquiring firm the more likely the use of cash financing. Also, the previously observed negative bidders' abnormal returns associated with stock financing are mainly in acquisitions made by firms with low managerial ownership.

Ownership Structure, Deregulation, and Bank Risk Taking

Published: 06/01/1990   |   DOI: 10.1111/j.1540-6261.1990.tb03709.x

ANTHONY SAUNDERS, ELIZABETH STROCK, NICKOLAOS G. TRAVLOS

This paper investigates the relationship between bank ownership structure and risk taking. It is hypothesized that stockholder controlled banks have incentives to take higher risk than managerially controlled banks and that these differences in risk become more pronounced in periods of deregulation. In support of this hypothesis, we show that stockholder controlled banks exhibit significantly higher risk taking behavior than managerially controlled banks during the 1979–1982 period of relative deregulation.

The Effect of Corporate Multinationalism on Shareholders' Wealth: Evidence from International Acquisitions

Published: 12/01/1988   |   DOI: 10.1111/j.1540-6261.1988.tb03962.x

JOHN DOUKAS, NICKOLAOS G. TRAVLOS

This study presents direct evidence on the effect of international acquisitions on stock prices of U.S. bidding firms. Shareholders of MNCs not operating in the target firm's country experience significant positive abnormal returns at the announcement of international acquisitions. Shareholders of U.S. firms expanding internationally for the first time experience insignificant positive abnormal returns, while shareholders of MNCs operating already in the target firm's country experience insignificant negative abnormal returns. The abnormal returns are larger when firms expand into new industry and geographic markets—especially those less developed than the U.S. economy. The evidence is consistent with the theory of corporate multinationalism, predicting an increase in the firm's market value from the expansion of its existing multinational network.

The Effect of Long‐Term Performance Plans on Corporate Sell‐Off‐Induced Abnormal Returns

Published: 09/01/1987   |   DOI: 10.1111/j.1540-6261.1987.tb03920.x

HASSAN TEHRANIAN, NICKOLAOS G. TRAVLOS, JAMES F. WAEGELEIN

This study examines the association between long‐term performance plans and wealth effects accruing to stockholders of divesting firms at announcements of sell‐off proposals. The results indicate that divesting companies with long‐term performance plans experience a more favorable stock market reaction at the announcement of sell‐off proposals relative to firms without long‐term performance plans. The findings imply that long‐term performance plans serve as an effective mechanism to motivate managers to make better decisions.

When It Pays to Pay Your Investment Banker: New Evidence on the Role of Financial Advisors in M&As

Published: 01/17/2012   |   DOI: 10.1111/j.1540-6261.2011.01712.x

ANDREY GOLUBOV, DIMITRIS PETMEZAS, NICKOLAOS G. TRAVLOS

We provide new evidence on the role of financial advisors in M&As. Contrary to prior studies, top‐tier advisors deliver higher bidder returns than their non‐top‐tier counterparts but in public acquisitions only, where the advisor reputational exposure and required skills set are relatively larger. This translates into a $65.83 million shareholder gain for an average bidder. The improvement comes from top‐tier advisors' ability to identify more synergistic combinations and to get a larger share of synergies to accrue to bidders. Consistent with the premium price–premium quality equilibrium, top‐tier advisors charge premium fees in these transactions.

The Cadbury Committee, Corporate Performance, and Top Management Turnover

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00428

Jay Dahya, John J. McConnell, Nickolaos G. Travlos

In 1992, the Cadbury Committee issued the Code of Best Practice which recommends that boards of U.K. corporations include at least three outside directors and that the positions of chairman and CEO be held by different individuals. The underlying presumption was that these recommendations would lead to improved board oversight. We empirically analyze the relationship between CEO turnover and corporate performance. CEO turnover increased following issuance of the Code; the negative relationship between CEO turnover and performance became stronger following the Code's issuance; and the increase in sensitivity of turnover to performance was concentrated among firms that adopted the Code.

An Empirical Study of the Consequences of U.S. Tax Rules for International Acquisitions by U.S. Firms

Published: 12/01/1994   |   DOI: 10.1111/j.1540-6261.1994.tb04786.x

GIL B. MANZON, DAVID J. SHARP, NICKOLAOS G. TRAVLOS

This article examines the effect of tax factors on the equity values of U.S. multinational corporations making foreign acquisitions. Abnormal stock returns are found to be related to a tax variable that captures differences in the international tax status of acquiring firms but not related to a naive tax variable that captures differences between tax rates in target countries and the United States. Our evidence suggests that aggregate intercountry differentials in after‐tax returns are competed away, while firm‐specific, tax‐related advantages (or disadvantages) are reflected in abnormal returns around the announcement date of the acquisition.

Managers, Owners, and The Pricing of Risky Debt: An Empirical Analysis

Published: 06/01/1994   |   DOI: 10.1111/j.1540-6261.1994.tb05148.x

ELIZABETH STROCK BAGNANI, NIKOLAOS T. MILONAS, ANTHONY SAUNDERS, NICKOLAOS G. TRAVLOS

This article examines managerial ownership structure and return premia on corporate bonds. It is argued that when managerial ownership is low, an increase in managerial ownership increases management's incentives to increase stockholder wealth at the expense of bondholder wealth. When ownership increases more, however, it is argued that management becomes more risk averse, with incentives more closely aligned with bondholders. This study finds a positive relation between managerial ownership and bond return premia in the low to medium (5 to 25 percent) ownership range. There is also weak evidence for a nonpositive relation in the large (over 25 percent) ownership range.