The Journal of Finance

Where Is the Risk in Value? Evidence from a Market‐to‐Book Decomposition

Published: 8/27/2019,  Volume: 74,  Issue: 6  |  DOI: 10.1111/jofi.12836  |  Cited by: 80

ANDREY GOLUBOV, THEODOSIA KONSTANTINIDI

We study the value premium using the multiples‐based market‐to‐book decomposition of Rhodes‐Kropf, Robinson, and Viswanathan (2005). The market‐to‐value component drives all of the value strategy return, while the value‐to‐book component exhibits no return predictability in either portfolio sorts or firm‐level regressions. Existing results linking market‐to‐book to operating leverage, duration, exposure to investment‐specific technology shocks, and analysts’ risk ratings derive from the unpriced value‐to‐book component. In contrast, results on expectation errors, limits to arbitrage, and certain types of cash flow risk and consumption risk exposure are due to the market‐to‐value component. Overall, our evidence casts doubt on several value premium theories.

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

Published: 1/17/2012,  Volume: 67,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2011.01712.x  |  Cited by: 347

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.

Proxy Advisory Firms: The Economics of Selling Information to Voters

Published: 5/14/2019,  Volume: 74,  Issue: 5  |  DOI: 10.1111/jofi.12779  |  Cited by: 74

ANDREY MALENKO, NADYA MALENKO

We analyze how proxy advisors, which sell voting recommendations to shareholders, affect corporate decision‐making. If the quality of the advisor's information is low, there is overreliance on its recommendations and insufficient private information production. In contrast, if the advisor's information is precise, it may be underused because the advisor rations its recommendations to maximize profits. Overall, the advisor's presence leads to more informative voting only if its information is sufficiently precise. We evaluate several proposals on regulating proxy advisors and show that some suggested policies, such as reducing proxy advisors' market power or decreasing litigation pressure, can have negative effects.

Strategic and Financial Bidders in Takeover Auctions

Published: 11/10/2014,  Volume: 69,  Issue: 6  |  DOI: 10.1111/jofi.12194  |  Cited by: 154

ALEXANDER  S. GORBENKO, ANDREY MALENKO

Using data on auctions of companies, we estimate valuations (maximum willingness to pay) of strategic and financial bidders from their bids. We find that a typical target is valued higher by strategic bidders. However, 22.4% of targets in our sample are valued higher by financial bidders. These are mature, poorly performing companies. We also find that (i) valuations of different strategic bidders are more dispersed and (ii) valuations of financial bidders are correlated with aggregate economic conditions. Our results suggest that different targets appeal to different types of bidders, rather than that strategic bidders always value targets more because of synergies.

Auctions with Endogenous Initiation

Published: 12/4/2023,  Volume: 79,  Issue: 2  |  DOI: 10.1111/jofi.13288  |  Cited by: 9

ALEXANDER S. GORBENKO, ANDREY MALENKO

We study initiation of takeover auctions by potential buyers and the seller. A bidder's indication of interest reveals that she is optimistic about the target. If bidders' values have a substantial common component, as in takeover battles between financial bidders, this effect disincentivizes bidders from indicating interest, and auctions are seller‐initiated. Conversely, in private‐value auctions, such as battles between strategic bidders, equilibria can feature both seller‐ and bidder‐initiated auctions, with the likelihood of the latter decreasing in commonality of values and the probability of a forced sale by the seller. We also relate initiation to bids and auction outcomes.

A Bayesian Approach to Real Options: The Case of Distinguishing between Temporary and Permanent Shocks

Published: 9/21/2010,  Volume: 65,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2010.01599.x  |  Cited by: 54

STEVEN R. GRENADIER, ANDREY MALENKO

Traditional real options models demonstrate the importance of the “option to wait” due to uncertainty over future shocks to project cash flows. However, there is often another important source of uncertainty: uncertainty over the permanence of past shocks. Adding Bayesian uncertainty over the permanence of past shocks augments the traditional option to wait with an additional “option to learn.” The implied investment behavior differs significantly from that in standard models. For example, investment may occur at a time of stable or decreasing cash flows, respond sluggishly to cash flow shocks, and depend on the timing of project cash flows.

Creating Controversy in Proxy Voting Advice

Published: 3/16/2025,  Volume: 80,  Issue: 4  |  DOI: 10.1111/jofi.13438  |  Cited by: 6

ANDREY MALENKO, NADYA MALENKO, CHESTER SPATT

We analyze how a profit‐maximizing proxy advisor designs vote recommendations and research reports. The advisor benefits from producing informative, unbiased reports, but only partially informative recommendations, biased against the a priori likely alternative. Such recommendations induce close votes, increasing controversy and thereby the relevance and value of proxy advice. Our results suggest shifting from an exclusive emphasis on recommendations, highlighting the importance of both reports and recommendations in proxy advisors' information provision. They rationalize the one‐size‐fits‐all approach and help reinterpret empirical patterns of voting behavior, suggesting that proxy advisors' recommendations may not be a suitable benchmark for evaluating shareholders' votes.