Yearly Archives: 2012

The SEC is Now Actively Considering the Rulemaking Petition on Corporate Political Spending

Posted by Lucian Bebchuk, Harvard Law School, and Robert J. Jackson, Jr., Columbia Law School, on
Friday, November 9, 2012
, , , , ,
More from: ,

Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Associate Professor of Law and Milton Handler Fellow at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition concerning political spending, discussed on the Forum here and here. Posts discussing their articles on corporate political spending, Corporate Political Speech: Who Decides?, and Shining Light on Corporate Political Spending, are available here.

According to a WSJ.com report, the Director and Deputy Director of the SEC’s Division of Corporate Finance indicated that the Division is now actively considering a rulemaking petition that was submitted by a committee of ten law professors that we co-chaired. The petition urged the SEC to adopt rules that would require public companies to disclose information about their political spending. At a conference this week, both the Director and Deputy Director indicated that the Division is currently looking into whether to recommend that the SEC issue such a rule.

As the Journal report notes, so far the SEC has received more than 300,000 comments on our petition—to our knowledge, more than any other rulemaking proposal in the Commission’s history. The overwhelming majority of these comments are supportive of the petition, leading the Director of the SEC’s Division of Corporation Finance to observe that the proposal “obviously [involves] an issue that’s extremely important to many.” In addition to the comments in the regulatory file, the petition has received support from a sitting Commissioner of the SEC, a substantial number of members of both the U.S. Senate and House of Representatives, and editorials in the New York Times and Bloomberg News.

READ MORE »

Litigating Post-Close Merger Cases

Posted by Boris Feldman, Wilson Sonsini Goodrich & Rosati, on
Friday, November 9, 2012
,
More from: ,

Boris Feldman is a member of Wilson Sonsini Goodrich & Rosati, P.C. Mr. Feldman and others at his firm were involved in some of the cases discussed. The views expressed in this post are those of Mr. Feldman and do not reflect those of his firm or clients.

Shareholder lawsuits over mergers are as ubiquitous as they are meritless. The incidence of suits over public-company acquisitions rounds to always. It doesn’t matter how high the premium or how clean the deal: someone (usually, one of the same someones) will sue.

The frequency of merger lawsuits has increased steadily over time. What has changed more abruptly is their life cycle. Until recent years, once a deal closed, the lawsuit usually went away. If the plaintiffs had been unable to wring out a “therapeutic” settlement pre-close (usually, “enhanced” disclosure + a fee) they ignored or dismissed the case after the acquisition was complete. The conventional wisdom was that plaintiffs’ leverage — threatening to interfere with the deal — was gone, and so there was no longer a path to payday.

In several recent cases, however, plaintiffs’ merger lawyers have refined their business model. They keep the litigation alive post-close. They take extensive discovery, especially against the executives of the acquirer, who now control the pursestrings. This phenomenon occurs even in situations where objective factors suggest a lack of merit to the claims: e.g., high premium; no contesting bidders; overwhelming shareholder approval; customary deal terms.

Why are the plaintiff lawyers pursuing these cases?

READ MORE »

Revaluation of Targets after Merger Bids

Posted by Ulrike M. Malmendier, University of California, Berkeley, on
Friday, November 9, 2012
,
More from:

Ulrike Malmendier is a Professor of Economics at the University of California, Berkeley.

Mergers are among the largest and most disruptive events in a corporation’s lifetime. The proper assessment of their value implications has been of foremost interest to policy-makers and academic researchers alike. Much of the research on mergers and acquisitions aims to assess which transactions create, or destroy, how much shareholder value, including a recent debate about “massive wealth destruction” through mergers (Moeller et al. (2005)).

Empirically, the measurement of the causal effect of mergers is challenging. The standard approach in the literature is to use stock-market reactions to merger announcements and to interpret the combined change in target and acquirer values as the expected total value created. This approach builds on a number of assumptions, including the assumptions that markets are efficient, that mergers are unanticipated and unlikely to fail, and that merger bids reveal little about the stand-alone values of the merging entities. Various studies document a small positive combined announcement return of targets and bidders, and interpret this finding as evidence in favor of value creation.

In our recent NBER working paper, Cash Is King — Revaluation after Merger Bids, my co-authors (Marcus Opp of UC Berkeley and Farzad Saidi of New York University) and I argue that a large portion of the announcement effect reflects target revaluation rather than value created through mergers, and that this portion varies with the type of payment: Targets of cash offers are revalued by +15%, but there is no revaluation of stock targets. We also find significant negative revaluation effects for stock bidders, but no effect for cash bidders. Our results imply that the widespread use of announcement effects significantly distorts the assessment of mergers.

READ MORE »

Giving Good Guidance: What Every Public Company Should Know

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Thursday, November 8, 2012
, , , ,
More from: , , , , , ,

The following post comes to us from Alexander F. Cohen, partner and co-chair of the national office of Latham & Watkins LLP. This post is based on a Latham & Watkins client alert by Mr. Cohen, Nathan Ajiashvili, Jeff G. Hammel, Steven B. Stokdyk, Kirk A. Davenport II, and Joel H. Trotter; the full publication, including footnotes and annex, is available here.

Every public company must decide whether and to what extent to give the market guidance about future operating results. Questions from the buy side will begin at the IPO road show and will likely continue on every quarterly earnings call and at investor meetings and conferences between earnings calls. The decision whether to give guidance and how much guidance to give is an intensely individual one. There is no one-size-fits-all approach in this area. The only universal truths are (1) a public company should have a policy on guidance and (2) the policy should be the subject of careful thought.

The purpose of this post is to provide an updated discussion of the issues that CEOs, CFOs and audit committee members should consider before formulating a guidance policy.

READ MORE »

Financial Reporting Frequency, Information Asymmetry, and the Cost of Equity

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Thursday, November 8, 2012
, ,
More from: , ,

The following post comes to us from Renhui Fu of the Rotterdam School of Management at Erasmus University, Arthur Kraft of the Cass Business School at City University London, and Huai Zhang of the Nanyang Business School at Nanyang Technological University.

In our paper, Financial Reporting Frequency, Information Asymmetry, and the Cost of Equity, forthcoming in the Journal of Accounting and Economics, we examine the impact of financial reporting frequency on information asymmetry and the cost of equity. While it may seem obvious that more frequent disclosures will reduce information asymmetry and the cost of equity, this issue is more complicated. For one, more frequent financial reporting may encourage sophisticated investors to engage in private information acquisitions, resulting in a greater information asymmetry among investors. Alternatively, requiring more frequent reporting may reduce managerial voluntary disclosures, leading to a net loss of information. As such, it is an empirical question.

READ MORE »

ISS Proposes 2013 Voting Policy Updates

Posted by Richard J. Sandler, Davis Polk & Wardwell LLP, on
Wednesday, November 7, 2012
, , , , , ,
More from: ,

Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on a Davis Polk client memorandum.

On Tuesday, October 16, Institutional Shareholder Services (ISS) proposed updates to its proxy voting guidelines for the 2013 proxy season.

ISS’s proposed policy would:

  • Recommend voting against boards of directors who do not act on shareholder proposals that were approved by the vote of a majority of shares cast in the prior year;
  • Revise ISS’s say-on-pay criteria by refining the peer group selection methodology, incorporating “realizable pay” analysis into the qualitative evaluation of pay-for-performance and designating pledging shares as a problematic pay practice;
  • Extend the analysis of golden parachute arrangements to existing and legacy arrangements rather than just new or renewed arrangements; and
  • Provide for a case-by-case assessment of shareholder proposals to link executive compensation to environmental and social “sustainability metrics.”

The proposed updates were open to public comment until October 31, and the final policies are expected to be released in November. While these new policies have not yet been finalized and are subject to revision, it’s not too early for public companies to consider how these changes could affect their ISS profile in the upcoming proxy season.

READ MORE »

The Relation between CEO Compensation and Past Performance

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Wednesday, November 7, 2012
, , , , ,
More from: , , ,

The following post comes to us from Rajiv Banker, Professor of Accounting at Temple University; Masako Darrough, Professor of Accountancy at City University of New York; Rong Huang, Assistant Professor of Accountancy at City University of New York; and Jose Plehn-Dujowich, Assistant Professor Accounting at Temple University.

Most of the empirical work on executive compensation investigates the role of contemporaneous performance measures in setting cash compensation, ignoring the relevance of past performance measures and the structure of cash compensation. In our paper, The Relation between CEO Compensation and Past Performance, forthcoming in The Accounting Review, we focus on the relation between cash compensation components (salary and bonus) and past performance measures as signals of a CEO’s ability.

We first develop a simple two-period principal-agent model with moral hazard and adverse selection. Our model suggests that salary is adjusted to meet the reservation utility and information rent, and is positively correlated over time to reflect ability. Bonus serves to address moral hazard and adverse selection problems by separating agents into contracts with different levels of risk. Agents are screened and receive different bonus arrangements according to their types. The higher an agent’s type, the more sensitive his bonus is to contemporaneous performance. A higher ability agent receives a larger portion of his compensation in the form of bonus and less as salary. For a given agent, salary increases with his past performance and higher current salary predicts higher future performance. Current bonus, however, is negatively correlated with both past and future performance.

READ MORE »

Lucian Bebchuk and Martin Lipton to Debate Blockholder Regulation

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation,, on
Tuesday, November 6, 2012
, , , ,
More from: , , , ,

Next Tuesday, November 13, the Conference Board will host a debate in New York City between Lucian Bebchuk, a professor of Law, Economics and Finance at Harvard Law School, and Martin Lipton, a founding partner of Wachtell, Lipton, Rozen & Katz (WLRK) on the regulation of outside blockholders. Those interested in attending the debate can do so by RSVP’ing at the Conference Board website here by Wednesday, November 7.

This debate will be the fourth time over the past decade that Bebchuk and Lipton will engage in an exchange:

The 2012 debate concerns an issue that became prominent last year when WLRK submitted a rulemaking petition (available here) to the SEC, advocating a tightening of the rules governing disclosure by outside blockholders under the Williams Act. In particular, the WLRK petition advocates reducing the period of time before the owner of 5% or more of a public company’s stock must disclose that position, from ten days to one day.

READ MORE »

Istanbul Stock Exchange Moves First on Mandatory Electronic Voting

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Tuesday, November 6, 2012
, , , ,
More from: ,

The following post comes to us from Melsa Ararat and Muzaffer Eroğlu, faculty at Sabancı University School of Management and University of Kocaeli Law School, respectively.

Abstract

Turkey’s New Company Law paved the way for its national stock exchange to be the first in the world to require the issuers change their company statutes in order to allow electronic participation and voting at their general assemblies. A recent regulation mandated all listed companies to use a single electronic portal to allow shareholders to participate and vote electronically in general assemblies with immediate effect. The move is one in a series of reforms in support of Istanbul International Financial Center Project. The Financial Times refers to the new regulation as a coup for international institutional investors with Turkish holdings as it increases the transparency of ISE listed companies and empowers them to embrace an activist approach. This commentary discusses the possible consequences of the new regulation.

READ MORE »

Fair Value Accounting for Financial Instruments

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Tuesday, November 6, 2012
, , , ,
More from: , , ,

The following post comes to us from Elizabeth Blankespoor of the Graduate School of Business at Stanford University; Thomas Linsmeier of the Financial Accounting Standards Board; Kathy Petroni, Professor of Accounting at Michigan State University; and Catherine Shakespeare of the Ross School of Business at the University of Michigan.

In our paper, Fair Value Accounting for Financial Instruments: Does it improve the Association between Bank Leverage and Credit Risk?, which was recently made publicly available on SSRN, we contribute to the debate on whether financial instruments should be measured at fair value in financial statements. Accounting standard setters have been deliberating the role of fair values for financial instruments for decades. A fair value is the price at which two willing parties would exchange an asset or settle a liability. Starting after the savings and loan crisis in the late 1980s, the Financial Accounting Standards Board (FASB) has increased the extent to which financial instruments are recognized at fair value (see Godwin, Petroni, and Wahlen 1998). In 2010, the FASB proposed to require that all financial instruments be recognized at fair value, with limited exceptions for receivables and payables and some companies’ own debt (FASB 2010). The proposal was controversial, with over 2,800 comment letters submitted, the vast majority of which objected to the fair value measurement of loans, deposits, and financial liabilities. The FASB is redeliberating this project and has tentatively decided that all financial instruments should be measured at fair value except certain debt financial assets and most financial liabilities (including deposits), which would be measured at amortized cost (FASB 2011).

To empirically provide insight on the controversy, we assess whether a fair value leverage ratio can explain measures of a bank’s credit risk better than a leverage ratio based on a mixture of fair values and historical costs consistent with the mixed-attribute model of US Generally Accepted Accounting Principles (GAAP) and a leverage ratio based on even fewer fair values than GAAP, which is consistent with regulatory Tier 1 capital. We focus on balance sheet leverage because it is very commonly used for assessing firm risk. We define a bank’s credit risk as the risk that the bank defaults on its obligations, and we focus on credit risk because understanding a bank’s credit risk is essential to understanding its financial condition.

READ MORE »

Page 9 of 63
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 … 63