Tag: Equity capital


REIT and Real Estate M&A in 2016

Adam O. Emmerich is a partner in the corporate department at Wachtell, Lipton, Rosen & Katz, focusing primarily on mergers and acquisitions, corporate governance and securities law matters. Robin Panovka is a partner at Wachtell Lipton and co-heads the Real Estate and REIT M&A Groups. This post is based on a Wachtell Lipton publication authored by Messrs. Emmerich and Panovka.

Following are some of the key trends we are following as we enter 2016, while keeping a weather eye on macro market turmoil:

  1. M&A activity should continue at a steady pace, with a number of public-to-private and public-to-public REIT mergers already in the works.
  2. We are not expecting an avalanche of REIT buyouts a la 2006-7, but many of the same drivers are apparent, as we noted last October in Taking REITs Private, and a number of significant transactions are likely.
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A New Measure of Disclosure Quality

Shuping Chen is Professor of Accounting at the University of Texas at Austin. This post is based on an article authored by Professor Chen; Bin Miao, Assistant Professor of Accounting at the National Singapore University; and Terry Shevlin, Professor of Accounting at UC Irvine.

In our paper, A New Measure of Disclosure Quality: The Level of Disaggregation of Accounting Data in Annual Reports, recently featured in the Journal of Accounting Research, we develop a new measure of disclosure quality (DQ), which captures the level of disaggregation of accounting line items in firms’ annual reports, with greater disaggregation indicating higher disclosure quality. This measure is based on the premise that more detailed disclosure gives investors and lenders more information for valuation (Fairfield et al., 1996; Jegadeesh and Livnat 2006) and a higher level of disaggregation enhances the credibility of firms’ financial reports (Hirst et al. 2007; D’Souza et al. 2010).

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Ten Trends in SEC Enforcement Actions

Jonathan N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg. The complete publication, including footnotes, is available here.

As 2015 winds down, we offer the following observations about ten important trends in SEC enforcement actions.

1. Increased Number of Enforcement Actions

The number of SEC enforcement actions continues to grow. In FY 2015, the SEC filed 807 enforcement actions, of which 507 were independent actions for violations of the securities laws and 300 were either follow-on actions (e.g., seeking bars against individuals based on prior orders) or actions against issuers who were delinquent in making required filings. This was up from 755 enforcement actions in 2014, of which 413 were independent actions, and that in turn was up from 676 enforcement actions in 2013, of which 341 were independent actions. Total monetary relief ordered rose from $3.4 billion in 2013 to $4.16 billion in 2014 to $4.19 billion in 2015.
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Equity Market Misvaluation, Financing, and Investment

Toni Whited is Professor of Finance at the University of Michigan. This post is based on an article authored by Professor Whited and Missaka Warusawitharana, Principal Economist at the Board of Governors of the Federal Reserve System.

Stock market volatility often dwarfs the volatility of real activity. Even in the 2008-2009 financial crisis, the sharp cutback in production and employment by many firms was tiny relative to the far steeper drops seen in most of their stock prices. The existence of such wide fluctuations in equity values relative to real activity raises the question of whether these swings reflect movements in intrinsic firm values. If not, then equity may be misvalued, and it is natural to wonder whether these non-fundamental movements in equity values affect managerial decisions. Put simply, does market timing occur, and how large are its effects?

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Shedding Light on Dark Pools

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement at an open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today, [November 18, 2015], the Commission considers proposing much-needed enhancements to the regulatory regime for alternative trading systems (“ATSs”) that trade national market system (“NMS”) stocks. I will support these proposals because they could go a long way toward helping market participants make informed decisions as they attempt to navigate the byzantine structure of today’s equity markets.

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Opening Remarks at Equity Market Structure Advisory Committee Meeting

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s opening remarks at the October 2015 Meeting of the Equity Market Structure Advisory Committee, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

The discussions at our inaugural meeting underscored for me how invaluable this Committee’s insights are as the Commission continues its efforts to ensure that the equity markets optimally meet the needs of investors—both large and small—and issuers of all sizes. With the careful consideration, input, and approval of each of the Commissioners, we have been able to assemble a diverse group of widely respected experts to effectively represent the views of key stakeholders in the equity markets. And I thank each of you again for your service.

Since we announced the formation and membership of the Committee in January, we have had requests from other market participants with valuable perspectives to join the Committee; some of those requests have been reiterated recently. I wish we could accommodate them all. While this was not practical, to ensure transparency of our efforts and representation of all viewpoints on a committee of this kind, we have taken a number of additional steps to broaden our means of obtaining input. These include presentations at all Committee meetings by expert panels; the independent provision of relevant data, analysis, and public briefings by Commission staff for feedback from all interested parties; an open comment file; and a transparent public agenda. These mechanisms are designed to ensure that the Commission and the Advisory Committee benefit from the full range of perspectives on important market structure topics.

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Evolving Equity Markets Require Constant Attention

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent address at a Meeting of the Equity Market Structure Advisory Committee. The full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I want to extend a warm welcome to the members of the Equity Market Structure Advisory Committee (“Committee”). I appreciate the work that you do and, in turn, how this work informs the Commission’s efforts to fulfill its mission. I also want to welcome everyone in the audience, whether participating in person or via the internet.

Well, if we needed more proof of the importance of this Committee, we’ve gotten it. Although, it’s been only five months since this Committee’s first meeting, we have already witnessed two major market disruptions. The first was a software glitch in July that halted trading at one major exchange for several hours. That event highlighted a glaring shortcoming in our current market infrastructure, specifically, the fact that the primary exchanges still have no back-up plan for their opening and closing auctions. This was especially disconcerting because in November 2013, the exchanges issued a public statement acknowledging the importance of developing backup plans for their critical functions—including their opening and closing auctions.

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Angels and Venture Capitalists: A Match Made in Heaven?

Thomas Hellmann is Professor of Entrepreneurship and Innovation at Oxford University. This post is based on two recent articles authored by Mr. Hellmann, Veikko Thiel, Assistant Professor of Business Economics at Queen’s University; Paul Schure, Associate Professor of Economics at the University of Victoria; and Dan Vo, Research Fellow at the University of British Columbia. Related research from the Program on Corporate Governance includes Carrots & Sticks: How VCs Induce Entrepreneurial Teams to Sell Startups, by Jesse Fried and Brian Broughman (discussed on the Forum here) and Delaware Law as Lingua Franca: Evidence from VC-Backed Startups, by Jesse FriedBrian Broughman, and Darian Ibrahim (discussed on the Forum here).

Are angel investors and venture capitalists friends or foes? Are they synergistic partners in the process of funding entrepreneurial value creation? Or are they distinct funding mechanisms where entrepreneurs have to decide which camp they want to be part of? In a series of two recent papers (Friends or Foes? The Interrelationship between Angel and Venture Capital Markets; and Angels and Venture Capitalists: Substitutes or Complements?), we examine these questions both from a theoretical [1] and an empirical [2] perspective.

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The Role of Academics and Industry in Improving Equity Market Structure

Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent remarks at the University of Notre Dame, Mendoza College of Business, Center for the Study of Financial Regulation; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [March 13, 2015], I want to focus my remarks on the equities markets, and specifically equity market structure. Although it may be hard for some of you in this room to believe, in the 20 months since I began this job, some have suggested that I am a so-called “market structure expert.” While such comments are certainly flattering, I cannot accept the compliment. Of course, my academic research, my private and public sector experience, and my current role as a Commissioner at the Securities and Exchange Commission (“SEC” or the “Commission”) have all given me unique insights into the functioning of our equities markets. However, like many people in this room, I still consider myself a “student of markets.” With so many issues to examine and debate, and the continued evolution of the financial markets, I think we can agree there is more for all of us to observe and learn.

It has been fifteen months since I gave my first speech on equity market structure. Both before and since, my colleagues at the Commission have kept the issue of market structure in the forefront through their own public remarks. Congress also has been expressing keen interest in equity market structure, shining a bright light on the issue. And we have had some unsolicited prompting by a bestselling author, who, to put it lightly, does not have flattering things to say about the current state of the equity markets in what many refer to as simply “The Book.” Given all of this attention, I am frankly disappointed that we at the SEC have accomplished very little.

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Does Group Affiliation Facilitate Access to External Financing?

The following post comes to us from Ronald Masulis, Peter Pham, and Jason Zein, all of the School of Banking & Finance at the University of New South Wales.

Across the world, difficulties in accessing external equity capital create a serious barrier to the development of new firms. In developed economies, this funding gap is bridged by angel investors and venture capitalists. In emerging economies however, contracting mechanisms and property rights protections are often insufficiently developed to support substantial venture capital activity. As a consequence, little is known about new venture funding in such economies and how external financing constraints are overcome.

In our paper titled “Does Group Affiliation Facilitate Access to External Financing? Evidence from IPOs by Family Business Groups,” which was recently made publicly available on SSRN, we investigate a major source of funding support for new firms—namely, internal equity investments by business groups, especially those controlled by families, and how this facilitates access to external equity markets. Our study is motivated by the pervasive nature of business group participation in international initial public offering (IPO) markets around the world: on average, 29 percent of new issue proceeds in each country is attributable to group-affiliated firms. This raises an important question regarding the role that business groups play in assisting new firms seeking to tap public equity markets. It also raises important questions about whether ignoring the existence of business groups creates serious biases in studies of international IPO activity.

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