Ali C. Akyol

Shareholders in the Boardroom: Wealth Effects of the SEC’s Proposal to Facilitate Director Nominations

Current attempts to reform financial markets presume that shareholder empowerment benefits shareholders. We investigate the wealth effects associated with the Securities and Exchange Commission’s rule to facilitate director nominations by shareholders. Our results are not in line with shareholder empowerment creating value: The average daily abnormal returns surrounding events that increase (decrease) the probability of the proposal’s passage are significantly negative (positive). Furthermore, given an increase in the probability of the proposal’s passage, firms whose shareholders are more likely to use the rule to nominate directors experience more negative abnormal returns.

Share Repurchase Reasons and the Market Reaction to Actual Share Repurchases: Evidence from Australia

Using repurchase reasons provided by Australian companies for their stock repurchase programs, we ask if the markets response is different across repurchase motivations by examining actual daily share repurchases. We find that firms with the undervaluation motive experience a more positive stock price reaction when they report their repurchases to the market. We show that undervaluation motive firms repurchase fewer shares and have a lower program completion rate than other motives firms. During the 1‐year period following the repurchases, undervaluation motive firms do better than their control sample firms whereas other motive firms do not perform better or worse than their control sample firms. Overall, our results suggest that the undervaluation motive is a stronger signal than other repurchase motives, and contrary to the predictions of the standard signaling theories, management statements carry some value for the market. We also present some evidence suggesting that a costly action may not be needed for a signal to be credible.

The Causes and Consequences of Accelerated Stock Repurchases

We examine the choice between accelerated share repurchase (ASR) and open market repurchase (OMR) as repurchase mechanisms between 2004 and 2007. For a sample of ASRs and OMRs that actually buy shares in the announcement quarter, we find that ASR firms have lower market-to-book ratios, less cash, but greater managerial entrenchment. Prior to repurchase, ASR firms are subject to significantly more takeover rumors than OMR firms are, and this, along with entrenchment and undervaluation, affects the choice to use ASRs. ASR firms experience positive average abnormal returns both before and after the announcement. Moreover, the latent takeover probability is significantly lower for both ASR and OMR firms (when compared with pre-announcement levels), but the reduction for ASR firms is more pronounced. Our results suggest that repurchases, and especially ASRs, indeed make a firm a less attractive prospect for takeover.

Stock returns around nontrading periods: evidence from an emerging market

I examine intraday stock returns in the Istanbul Stock Exchange (ISE) around nontrading periods – weekends and holidays – by utilizing the exchanges structure of two trading sessions. I find that returns are generally more positive in the last session on Fridays and more negative in the first session on Mondays. The results also indicate that the weekend effect has disappeared in the ISE in recent years. I further find some evidence that there is a relationship between the length of a holiday nontrading period and returns around it. The longer a nontrading period is, the more positive the returns are in the morning session before the holiday and the less positive the returns are in the morning session after the holiday. My findings indicate the importance of the uncertainty imposed on stock returns by the length of a nontrading period.

Who Chooses Board Members

We exploit a recent regulation passed by the US Securities and Exchange Commission (SEC) to explore the nomination of board members to US publicly traded firms. In particular, we focus on firms’ use of executive search firms versus simply giving choice rights to internal members (oftentimes simply the CEO), in nominating the new directors to serve on the board of directors. We show that companies that use search firms to find their board members pay their CEOs significantly higher salaries and significantly higher total compensations. Further, companies with search firm directors are significantly less likely to fire their CEOs following negative performance. In addition, we find that companies with search firm directors are significantly more likely to engage in mergers and acquisitions, and see abnormally low returns from this M&A activity (CEO compensation and monitoring along with acquisition strategy being perhaps the most attributable to board decision-making). We then instrument the endogenous choice of using an executive search when choosing directors through the varying geographic distance of companies to executive search firms. Using this IV framework, we show search firm directors’ negative impact on firm performance, consistent with firm behavior and governance consequences we also document.

How Do Experienced Analysts Improve Price Efficiency

We document that the accrual anomaly is mitigated for firms followed by experienced analysts, suggesting a positive link between analyst quality and stock price efficiency. We examine two channels through which analysts may improve price efficiency — the research and monitoring channels. We find analysts and investors respond more positively to the accrual component of earnings for firms followed by experienced analysts, consistent with the monitoring channel, whereby experienced analysts bring about better accrual quality. Direct examination of accrual quality confirms that firms followed by experienced analysts have higher accrual quality; this holds around exogenous events of broker mergers and closures.