Publications
“Recent Changes in Disclosure Regulation: Description and Evidence” Journal of Corporate Finance, 13, 2007, 335–342.
Technology has dramatically reduced the cost of disclosing information to investors and created new conduits for securities’ sales. The result is stock ownership, both direct and indirect, has never been more widely distributed. Equally important, changes have occurred in the institutional market for new offerings. Bought deals, Internet road shows, the preeminence of mutual funds and pension funds, and foreign investors and issuers have changed the market. In the wake of these changes, the SEC’s disclosure policy has evolved. The evidence suggests we have moved from a world where information was released relatively infrequently and with significant lags to a world where information is released relatively rapidly on a continuous basis to as many investors as possible.
“Policy Issues Raised by Structured Products,” with A. Ferrell, Brookings-Nomura Papers on Financial Services, Yasuki Fuchita, Robert E. Litan, eds., Brookings Institution Press, 2007.
“Corporate Voting’s Dimpled Chad? The Broker Vote and Beyond,” with S. Gillan, Corporate Governance Bulletin, Volume XXII (1), March-May 2004, 10-12.
“The Impact of the Institutional and Regulatory Environment on Shareholder Voting,” with S. Gillan, Financial Management Journal, Volume 31, Number 4, Winter, 2002, 29-54. (Previous version, “Does Managerial Control of the Proxy Process Disenfranchise Shareholders,” received the McGraw-Hill/Irwin "Best Paper in Business Finance" for the 2000 FMA Annual Meeting).
We document that certain features of the institutional and regulatory environment governing shareholder voting can affect the co-location of shares' voting and cash-flow rights. We show that "routine" management proposals, for which brokers can vote shares held in "street name" if investors fail to vote, receive more votes favorable to management than do "nonroutine" proposals and may pass because of their routine classification. Moreover, negative recommendations from the leading shareholder-voting advisory service are associated with fewer votes cast favorable to management. We also find voting results are related to ownership structure, the use of proxy solicitors, and other firm characteristics.
Companies in the United States that need capital may choose between selling securities in the private and public markets. These venues differ in terms of direct issuance costs, the required disclosure, the liability incurred by issuers and offerors, and the mechanics of the capital raising process itself. During the last two decades, the Securities and Exchange Commission (SEC) deregulated private offerings by broadening their investor base and raising secondary market liquidity. At the same time, SEC policy bifurcated the offering process in the public market based largely on company size and seasoning. Large public issuers have seen a gradual deregulation and acceleration of their capital raising processes. Important changes for issuers include allowing them to incorporate information into registration statements by reference to Exchange Act reports, to use shelf registration to speed up offers, and to place securities offshore with less regulatory uncertainty. Though small issuers enjoy some of the benefits of these changes, deregulation of their offerings has been somewhat less pronounced. In a Commission report and a subsequent concept release, the SEC indicates it may restructure and unify these three disparate strands of capital raising through an innovative schema of registering companies rather than securities.
“Block Share Purchases and Corporate Performance," with J. Liebeskind and T. Opler, Journal of Finance, 1998, 53 (2), pp. 605–634; Reprinted in The International Library of Critical Writings in Financial Economics, Series Editor - Richard Roll, Volume Editor - Michael J. Brennan. Edward Elgar Publishing Limited, Cheltonham, U.K., 2000.
This paper investigates the causes and consequences of activist block share purchases in the 1980s. We find that activist investors were most likely to purchase large blocks of shares in highly diversified firms with poor profitability. Activists were not less likely to purchase blocks in firms with shark repellents and ESOPs. Activist block purchases were followed by increases in asset divestitures, decreases in mergers and acquisitions, and abnormal share price appreciation. Industry-adjusted operating profitability also rose. This evidence supports the view that the market for partial corporate control plays an important role in limiting agency costs in U.S. corporations.
"Diversification and the Legal Organization of the Firm," with J. Liebeskind, Organization Science, 1998, 9 (1), pp. 49–67; Academy of Management Best Papers Proceedings 1994.
The existing literature on the relationship between strategy and structure tends to ignore the legal dimension of the organization of diversified firms. Yet, there is considerable variation in their legal organization; while some of firms are organized as simple corporations, many are organized as "corporate groups" in which certain lines of business are organized as separate, subsidiary firms. In this paper, we argue that this variation in legal organization is observed because legal organization can significantly affect firm value. In particular, forming subsidiary firms to accommodate new businesses can protect outstanding stakeholders of a diversified firm from increases in bankruptcy risk and liability exposure. However, forming subsidiary firms also reduces economies of scope. Hence there are offsetting costs and benefits to adopting different types of legal organization. Changes in these relative costs and benefits over time can be expected to trigger changes in legal organization, as well as divestitures of businesses characterized by particular types of economic hazards.
"The Use of Heuristics in Capital Budgeting: The Case of Ranking Projects by IRR," with D. Asquith, Engineering Economist, 1995, 40 (3), pp. 287–294.
This paper examines the use of a simple heuristic for evaluating projects. We posit that ranking projects by IRR and rejecting marginal projects can be superior to a NPV rule if 1) project managers have incentives to overstate cash flow forecasts that occur late in a project's life, 2) project rankings determine project acceptance because not all positive NPV projects are accepted, and 3) a project's IRR is greater than the WACC. In these instances, the IRR heuristic undervalues distant cash flows and thus, reduces project managers' incentives to positively bias forecasts.
"The Effects of Ownership Structure on Corporate Restructuring," with J. Liebeskind, Strategic Management Journal, 1993, 14, pp. 15–31.
This paper investigates the relationship between ownership structure and corporate restructuring in a sample of 93 surviving public Fortune 500 firms during the period 1981–87. The results show that blockholder ownership is associated significantly with corporate restructuring, suggesting that many managers restructured their corporations during the 1980s only when pressured to do so by large shareholders.
Case Studies and Teaching Notes
"The
Boston Beer Company (A)," Revised 2002.
"The Boston Beer Company (B)," Revised 2002.
"Teaching Note for The Boston Beer Company" 2002.
This series of cases and teaching note on the initial public stock offering of Boston Beer offer students an opportunity to value the stock (Case A) and examine the impact of increasing the firm's debt/equity ratio after the stock's issuance (Case B). This case is positioned for inclusion in M.B.A. finance courses. These cases are distributed through the European Case Clearing House and Harvard Business School.