Yearly Archives: 2018

ETF Ownership and Corporate Investment

Posted by Constantinos Antoniou (University of Warwick), Avanidhar Subrahmanyam (UCLA), and Onur Tosun (University of Warwick), on
Thursday, June 28, 2018
, , , , , , , ,
More from: , ,

Constantinos Antoniou is Associate Professor of Finance and Behavioural Science at University of Warwick Business School; Avanidhar Subrahmanyam is Distinguished Professor of Finance, Goldyne and Irwin Hearsh Chair in Money and Banking at University of California Los Angeles Anderson School of Management; and Onur Tosun is Assistant Professor of Finance at University of Warwick Business School. This post is based on their recent paper.

Recent work has highlighted that exchange traded funds (ETFs) contribute to a decrease in the pricing efficiency of the underlying securities (Ben-David, Franzoni and Moussawi, 2017). This is because, due to their high liquidity, ETFs attract high-frequency traders. Moreover, since ETFs and the underlying assets are bound by no arbitrage conditions, volatility in ETFs caused by high-frequency trading can propagate to the underlying assets, as arbitrageurs trade to exploit violations of the law of one price. As a result, the stock prices of companies with high ETF ownership are more noisy.

Corporate managers rely on stock prices for information, since stock prices aggregate information about the future prospects of their companies from a large pool of outside investors, and some of this information is not known to management. This reliance on the stock price leads to the well-established positive relationship between stock prices and corporate investment, which indicates that the managers of companies with higher stock prices (which are deemed by the market to have good growth opportunities) invest more heavily.

READ MORE »

FIRRMA Is Coming: How to Get Ready

Posted by Randall H. Cook, Rosanne Giambalvo, and Steve Klemencic, Ankura Consulting, on
Thursday, June 28, 2018
, , , , , ,
More from: , , , , , ,

Randall H. Cook is Senior Managing Director, Rosanne Giambalvo is Senior Director, and Steve Klemencic is Managing Director at Ankura Consulting. This post is based on an Ankura memorandum by Mr. Cook, Ms. Giambalvo, Mr. Klemencic, Michael Garson, Mona Banerji, and Bill Bray.

On May 22, 2018, congressional committees in both the U.S. Senate and House of Representatives advanced the Foreign Investment Risk Review Modernization Act, or “FIRRMA.” This legislation, which the Senate Armed Services Committee also included in its version of the National Defense Authorization Act, likely will be enacted into law in the next few months, with significant impact on the regulatory environment concerning foreign direct investment (“FDI”) in the United States. FIRRMA will significantly expand the jurisdiction and activity of the Committee on Foreign Investment in the United States (“CFIUS”), and most likely include provisions aimed specifically at a broader set of FDI transactions involving U.S. distressed debt, real estate, and critical technology. The driver of this change is concern that foreign countries, particularly China, are deliberately utilizing foreign investment to acquire national security-critical assets, technologies, and information to their strategic advantage.

Success in this dynamic, increasingly complex investment environment requires both quality counsel and an experienced, technically expert team that understands and can effectively address the full spectrum of CFIUS’s growing authority and concerns. This post provides background on CFIUS, describes some of FIRRMA’s key provisions and what they may mean for your business and investments, and discusses the importance of an interdisciplinary approach to successfully navigating the CFIUS process.

READ MORE »

Surprises from the 2018 Proxy Season

Posted by Shirley Westcott, Alliance Advisors, on
Wednesday, June 27, 2018
, , , , , , , , , , ,
More from: ,

Shirley Westcott is a Senior Vice President at Alliance Advisors LLC. This post is based on an Alliance Advisors publication by Ms. Westcott.

As the 2018 proxy season enters its final weeks, several notable trends have emerged which may inform post-season engagements and shape next year’s shareholder campaigns.

Calls for various types of climate action have resonated strongly with investors as have social initiatives on gun violence, sexual misconduct and the opioid epidemic. Pay programs have faced more frequent rebukes and even auditors, in isolated events, have been challenged over independence and performance. Retail proponents also stepped up their game with filings of exempt solicitations, while conservative investors countered liberals’ messages by co-opting their proposals.

In short, shareholders are increasingly flexing their muscles on everything from environmental and social (E&S) issues to executive compensation. A brief look at some of the season’s highlights is presented below.

READ MORE »

Trade Secrets Protection and Antitakeover Provisions

Posted by Aiyesha Dey (Harvard Business School) and Joshua T. White (Vanderbilt University), on
Wednesday, June 27, 2018
, , , , , , , ,
More from: ,

Aiyesha Dey is Høegh Family Associate Professor of Business of Administration at Harvard Business School; and Joshua T. White is Assistant Professor of Finance at Vanderbilt University Owen Graduate School of Management. This post is based on their recent paper.

Related research from the Program on Corporate Governance includes What Matters in Corporate Governance? by Lucian Bebchuk, Alma Cohen, and Allen Ferrell; The Costs of Entrenched Boards by Lucian Bebchuk and Alma Cohen; and Reexamining Staggered Boards and Shareholder Value by Alma Cohen and Charles C.Y. Wang (discussed on the Forum here).

Few topics have received more attention in the academic literature than public corporations’ use of antitakeover provisions. Despite the voluminous literature, we still do not fully understand why managers adopt antitakeover provisions, if their use represents “good” or “bad” governance, and which of the provisions, if any, offer actual protection against takeovers (Straska and Waller 2014).

Two views, each with different implications for firm value, have emerged in the literature. The first view holds that entrenched managers implement antitakeover provisions in a value-destroying way to shield themselves from the market for corporate control (e.g., Bebchuk et al. 2008). The other view argues that firms adopt antitakeover provisions to protect innovation incentives by reducing capital market pressures (Stein 1988). However, given that the decision to adopt antitakeovers is endogenous to the firm and manager, a resolution on their implications for shareholder value is challenging. Recently, scholars have also raised the possibility that the net benefits of antitakeovers are likely to vary across firms and the circumstances of their use (Johnson et al., 2015).

READ MORE »

Clarifying Class Action Tolling

Posted by Samuel P. Groner, Israel David, and Andrew B. Cashmore, Fried, Frank, Harris, Shriver & Jacobson LLP, on
Wednesday, June 27, 2018
, , , , ,
More from: , , , , , ,

Samuel P. Groner and Israel David are partners and Andrew B. Cashmore is an associate at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Mr. Groner, Mr. David, Mr. Cashmore, Scott B. Luftglass, Michael C. Keats, and James E. Anklam.

[On June 11, 2018], the Supreme Court resolved a circuit split regarding whether the filing of a class action lawsuit tolls the statute of limitations for putative class members to file their own class actions. In China Agritech, Inc. v. Resh, 584 U.S.      , 2018 WL 2767565 (June 11, 2018), the Court held that so-called American Pipe tolling—which allows a putative class member to file an individual claim upon denial of class certification, even if the statute of limitations would have by that time otherwise run out—does not permit the maintenance of a follow-on class action past the expiration of the statute of limitations.

American Pipe tolling was first recognized by the Court over forty years ago in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), where the Court held that the timely filing of a class action tolls the applicable statute of limitations for all persons encompassed by the class complaint. In American Pipe, the Court further ruled that, where class action status has been denied, members of the failed class could timely intervene as individual plaintiffs in the still-pending action, shorn of its class character. In 1983, the Court clarified in Crown, Cork & Seal Co. Inc. v. Parker, 462 U.S. 345 (1983) that American Pipe’s tolling rule is not dependent on intervening in or joining an existing suit; it applies as well to absent class members who, after denial of class certification, prefer to bring an individual suit once the economies of a class action are no longer available.

READ MORE »

Peer Selection and the Wisdom of the Crowd: Considerations for Companies and Investors

Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on
Tuesday, June 26, 2018
, , , , , , ,
More from: , , , ,

Anthony Garcia is a Policy Advisor at ISS Custom Research, Kosmas Papadopoulos is Managing Editor and John Roe is Head of ISS Analytics. This post is based on their publication for ISS Analytics.

Peer groups form the bedrock of many company pay-setting exercises. Benchmarking CEO pay to a target value, typically the median pay of a group of “peer” companies, is a standard practice used by compensation committees; more than 97 percent of S&P 500 companies disclose benchmarking peer groups. And while there was once significant skepticism among the investor community due to perceived peer group manipulation (typically companies selecting many larger companies or “aspirational peers,” leading to escalating executive pay), most companies seem to have reformed their peer group selection practices.

In this post, we provide an alternative look at peer groups using the “wisdom of the crowd”—that is, the network of companies formed by examining the peer selections that other companies are making (and specifically ignoring the peer selections made by the target company itself). This is not meant to be a suggestion of peers for each company to use—but rather, a comparison to see how often the “wisdom of the crowd” arrives at decisions similar to the company’s own.

READ MORE »

The Missing Profits of Nations

Posted by Thomas R. Tørsløv (University of Copenhagen), Ludvig S. Wier (University of Copenhagen), and Gabriel Zucman (UC Berkeley), on
Tuesday, June 26, 2018
, , , , , , ,
More from: , ,

Thomas R. Tørsløv and Ludvig S. Wier are PhD candidates at the University of Copenhagen; and Gabriel Zucman is Assistant Professor of Economics at UC Berkeley. This post is based on their recent paper.

Perhaps the most striking development in tax policy throughout the world over the last few decades has been the decline in corporate income tax rates. Between 1985 and 2018, the global average statutory corporate tax rate has fallen by more than half, from 49% to 24%. In 2018, most spectacularly, the United States cut its rate from 35% to 21%.

Why are corporate tax rates falling? The standard explanation is that globalization makes countries compete harder for productive capital, pushing corporate tax rates down. By cutting their rates, countries can attract more machines, plants, and equipment, which makes workers more productive and boosts their wage. This theory provides a consistent explanation for the global decline in tax rates observed over the last twenty years and offers nuanced normative insights (see Keen and Konrad, 2013, for a survey of the large literature on tax competition).

Our paper asks a simple question: is this view of globalization and of the striking tax policy changes of the last years well founded empirically? Our simple answer is “no.” Machines don’t move to low-tax places; paper profits do. By our estimates, close to 40% of multinational profits are artificially shifted to tax havens in 2015. The decline in corporate tax rate is thus the result of policies in high-tax countries—not a necessary by-product of globalization. The redistributive consequences of this process are major: instead of increasing capital stocks in low-tax countries, boosting wages along the way, profit shifting merely reduces the taxes paid by multinationals, which mostly benefits their shareholders, who tend to be wealthy.

READ MORE »

Political and Social Issues in the Boardroom: Examples from the Gun Industry

Posted by Steven M. Haas and Meghan Garrant, Hunton Andrews Kurth LLP, on
Tuesday, June 26, 2018
, , , , , , , , , , , , , ,
More from: , ,

Steven M. Haas is a partner and Meghan Garrant is an associate at Hunton Andrews Kurth LLP. This post is based on a Hunton Andrews Kurth memorandum by Mr. Haas and Ms. Garrant.

Related research from the Program on Corporate Governance includes Socially Responsible Firms by Allen Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here) and Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

Boards of directors are increasingly having to make difficult decisions arising from social or political issues. In today’s social media environment, companies can quickly find themselves facing consumer boycotts, targeted media campaigns, and other adverse publicity that could harm shareholder value. These threats may arise from the company’s product line or services, or more indirectly from its affiliation with another business or political organization. Companies may decide to take a stance to build consumer goodwill, avoid criticism or backlash, or even because the issue has a direct bearing on the company’s operations (e.g., immigration policy). Last year, for example, several chief executive officers resigned from the president’s American Manufacturing Council. Other times, companies may choose to do nothing or try to remove themselves from the debate. In addition to dealing with these complex business decisions, boards also are being confronted by investors who are increasingly focused on environmental, social, and governance (“ESG”) issues. This article discusses the intensifying boardroom environment of dealing with political and social issues by using gun violence as a recent example.

READ MORE »

The Highest-Paid CEO by U.S. State

Posted by Alex Knowlton, Equilar Inc., on
Monday, June 25, 2018
, , , ,
More from: ,

Alex Knowlton is a Senior Research Analyst at Equilar Inc. This post is based on an Equilar memorandum by Mr. Knowlton. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein.

The compensation of chief executive officers has been under the spotlight, particularly with the initial release of the CEO-to-median-worker pay ratio disclosure requirement. As a result, CEO compensation has been dissected further than ever before. However, shareholders may feel somewhat disconnected to this information due to the large, national scale. A closer-to-home, more intricate analysis of chief executive compensation can be viewed by breaking it down by the highest-paid CEO by state. A recent study Equilar conducted with the Associated Press did just that, and analyzed the total compensation of the highest-paid CEO at public companies in 46 of the 50 states. Chief executives had to have been with a company for at least two years and the Company had to have filed a proxy between January 1, 2018 and April 30, 2018 to be included in the study.

READ MORE »

Business Groups and Firm-Specific Stock Returns

Posted by Mara Faccio (Purdue University), Randall Morck (University of Alberta), M. Deniz Yavuz (Purdue University), on
Monday, June 25, 2018
, , , , , , ,
More from: , ,

Mara Faccio is the Hanna Chair in Entrepreneurship & Professor of Finance at Purdue University Krannert School of Management; Randall Morck is the Stephen A. Jarislowsky Distinguished Chair in Finance at the University of Alberta; and M. Deniz Yavuz is Associate Professor at Purdue University Krannert School of Management. This post is based on a recent paper authored by Professor Faccio, Professor Morck, and Professor Yavuz.

Measures of general and financial development tend to correlate positively with measures of firm-specific stock return volatility at the economy level (Morck et al. 2000). Lower firm-specific stock return volatility, in turn, is associated with less efficient capital allocation (Wurgler, 2000; Durnev et al., 2004; Morck et al., 2013). Business groups, collections of separately listed firms under common control through equity blocks, are also more prevalent in lower income economies (La Porta et al., 1999; Morck, Wolfenzon, and Yeung, 2005; Khanna and Yafeh, 2007), and thought to be a second best suboptimal solution to allocatively inefficient financial markets (Khanna and Palepu, 2000; Almeida and Wolfenzon, 2006; Khanna and Yafeh, 2007). This study connects these two lines of research by showing that business group affiliated firms’ stock returns exhibit less firm-specific volatility than do the returns of unaffiliated firms in similar conditions.

READ MORE »

Page 43 of 86
1 … 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 … 86