Alfred Yawson

Are Corporate Restructuring Events Driven by Common Factors? Implications for Takeover Prediction

The paper shows that variables commonly used in takeover prediction models also help to explain the likelihood of several other restructuring events, including divestitures, bankruptcies and significant employee layoffs. This finding helps to explain the larger misclassification errors in binomial takeover prediction models commonly used in prior research. The results show that modelling takeover prediction models in a binomial setting is likely to lead to misspecification in the parameter estimates and, further, result in erroneous conclusions about the determinants of takeover likelihood. The paper shows that controlling for other restructuring events by using a multinomial framework results in consistently lower misclassification errors in out-of-sample prediction tests, when compared to the benchmark of a typical binomial model. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

Divestitures, Wealth Effects and Corporate Governance

We analyse the market reaction to divestiture decisions and determine the impact of corporate governance practices. We find the market reaction is significant and can be determined using internal governance mechanisms. We evaluate the determinants of the decision to sell using a control sample of firms displaying characteristics often associated with divestitures indicating that these firms may face the same incentives to divest but elect not to restructure in this manner. Our results suggest that a combination of strong internal and external governance may force managers to act in a manner that is incompatible with their personal desires.

Internal Restructuring and Firm Survival

We examine the impact of two common methods of internal restructuring, layoffs and divestitures on the survival of a sample of UK firms. Using a Poisson regression model, we find that divestitures improve survival likelihood by reducing the probability and speed of market exit via takeover or bankruptcy, whereas layoffs increase the probability and speed of market exit via bankruptcy. Surprisingly, classifying firms into financially distressed and healthy groups, we find that distressed firms are less likely to restructure. Furthermore, while divestitures improve survival likelihood in both groups, layoff firms are less likely to survive, irrespective of whether they are distressed or healthy. Our findings are consistent with event studies that examine the market reaction to layoffs and divestiture decisions, and so provide some support for the view that the market correctly values the consequences of these restructuring actions on firm survival. The results are robust to several econometric and modeling issues, including controlling for potential self‐selection bias.

Corporate Governance and Restructuring Activities Following Completed Bids

Research Question/Issue: We examine the extent to which effective corporate governance impacts three restructuring choices following completed acquisitions – significant adjustment to workforce; sa ...

Comparative Advantage, Industry Specialization, and the Role of Investment Banks in M&As

This paper examines the value added role of industry specialist advisors in M&A transactions using the Additive Revealed Comparative Advantage (ARCA) index to proxy advisors’ relative level of industry specialization prior to deal announcement. After controlling for endogeneity, we find that industry specialist advisors are able to generate higher returns for their acquirer clients, with the value creation resulting primarily from the selection of more synergistic targets and negotiating to pay a lower takeover premium. Additionally, while our results suggest specialist advisors are less likely to complete a deal, they are able to complete tender offers in less time. The findings are consistent with the traditional perception of the superiority of industry specialists and show that specialization is beneficial to the M&A advisory market. We find that specialist advisor charge lower fees, suggesting that in addition to superior advice, they are able to pass some cost efficiencies onto their bidder clients.

Evaluating the market reaction to UK divestitures

Purpose – To determine whether the abnormal returns accruing to UK companies undertaking a divestiture are different when the unit sold is in the UK or elsewhere and to specifically hypothesize that returns generated by a domestic sale will be higher than those resulting from an overseas sale.Design/methodology/approach – Using a sample of 668 divestitures reported on securities data corporation (SDC) Platinum database, and share price data from DataStream, both abnormal returns and cumulative abnormal returns (CARs) are calculated around the announcement date using the market model.Findings – That the announcement of a divestiture generates positive abnormal returns for shareholders. Further, that the announcement of a UK divestiture generates a significantly larger positive market reaction than the announcement of an overseas divestiture. For the divestiture of units located outside the UK it is found that the largest CARs are generated when the buying firm is based in the UK.Originality/value – Here th...

Who Acquires Toxic Targets?: XX Who Acquires Toxic Targets?

We examine the consequences of environmental lawsuits in the market for corporate control. Using a sample of lawsuits filed in the U.S. federal courts, we document that environmental litigation reduces sued firms’ bidding activities during the subsequent three years. Purchasing targets that have been sued for environmental violations is value destroying for acquirers, as evidenced by their announcement‐date returns. Finally, firms with poor corporate governance are more likely to acquire such “toxic” targets. Our empirical results are robust to falsification tests using securities and contractual lawsuits, controlling for endogeneity using an instrumental variable approach, propensity score matching, employing an alternative lawsuit sample, and alternative control variables and model specifications. Our findings have significant implications for policymakers, corporate executives, and environmental interest groups.

The Decision to Seek Advice in the Self-Directed Retirement Fund Industry

This article examines the influence of investor knowledge and the cognitive bias that arises from overconfidence on the advice-seeking behaviour of investors managing their own retirement funds. Specifically, we trace whether overestimating one’s own technical and financial abilities can hinder the willingness to seek advice, particularly when it would be in the investors’ best interest to do so. We identify a subset of investors who are not knowledgeable and yet do not seek advice. These investors exhibit overconfidence in their ability to manage a fund, despite holding under-diversified and less sophisticated portfolios relative to their peers. Given the global rise in investors choosing to manage their own retirement funds and the importance of seeking advice in this context, there are direct policy implications from these results. They suggest a need to identify and target investors who display overconfidence since they are most likely to be managing underperforming retirement investments in the longer term.

The Impact of Institutional Shareholding on Firm Income Instability Risk: Evidence from Finland

The Impact of Institutional Shareholding on Firm Income Instability Risk: Evidence from Finland