André Betzer

Insider Trading and Corporate Governance - The Case of Germany

We analyse transactions by corporate insiders in Germany. We find that insider trades are associated with significant abnormal returns. Insider trades that occur prior to an earnings announcement have a larger impact on prices. This result provides a rationale for the UK regulation that prohibits insiders from trading prior to earnings announcements. Both the ownership structure and the accounting standards used by the firm affect the magnitude of the price reaction. The position of the insider within the firm has no effect, which is inconsistent with the informational hierarchy hypothesis.

Private Equity Acquisitions of Continental European Firms - The Impact of Ownership and Control on the Likelihood of Being Taken Private

This paper studies the motives behind private equity acquisitions of publicly listed firms in continental Europe. As corporate control and ownership in continental Europe tend to be highly concentrated, we argue that it is important to take into account the incentives of the incumbent large shareholder to monitor the management and the private benefits of control the latter may derive from the firm when measuring the likelihood of the firm being taken over by a private equity investor. We find strong and consistent evidence that both have a significant impact on the likelihood of a private equity acquisition.

Dividend announcements reconsidered dividend changes versus dividend surprises

This paper reconsiders the issue of share price reactions to dividend announcements. Previous papers rely almost exclusively on a naive dividend model in which the dividend change is used as a proxy for the dividend surprise. We use the difference between the actual dividend and the analyst consensus forecast as obtained from I/B/E/S as a proxy for the dividend surprise. Using data from Germany, we find significant share price reactions after dividend announcements. Once we control for analysts’ expectations, the dividend change loses explanatory power. Our results thus suggest that the naive model should be abandoned. We use panel methods to analyze the determinants of the share price reactions. We find (weak) support in favor of the dividend signaling hypothesis and no support for either the free cash flow hypothesis or the rent extraction hypothesis.

The Information Content of Dividend Surprises: Evidence from Germany

This paper reconsiders the issue of share price reactions to dividend announcements. We use the difference between the actual dividend and the analyst consensus forecast as obtained from I/B/E/S as a proxy for the surprise in the dividend announcement. Using data from Germany, we find significant share price reactions after dividend announcements. We use panel methods to analyze the determinants of the share price reactions and find evidence in favour of the cash flow signaling hypothesis and dividend clientele effects. We further find that the price reaction to dividend surprises is related to the ownership structure of the firm. The results do not support the free cash flow hypothesis. An additional result of our analysis is that dividend changes are not an appropriate measure to capture the information content of dividend announcements.

Economic Consequences of Private Equity Investments on the German Stock Market

This paper investigates the wealth effects of private equity (PE) investor purchases of shares in German quoted companies. It is the first study to analyze these effects for the German market which is particularly interesting due to its distinct characteristics with regard to the ownership structure of publicly listed companies and the protection of minority shareholders. We find that PE investors generate positive wealth effects for target shareholders of 5.90% around the event day (t = -1 to t = 0). In addition, we find that the wealth effects of PE investor involvement in Germany are positively related to the targets tax liabilities and degree of undervaluation and negatively related to the targets leverage and the shareholding of the second largest ownership block. The latter effect can be interpreted as a supplementary monitoring effect of the management or a monitoring effect of the largest shareholder through which private benefits of control are reduced.

Wealth effects of private equity investments on the German stock market

This paper investigates the wealth effects of private equity (PE) investor purchases of shares in German quoted companies. It is the first study to analyse these effects for the German market, which is particularly interesting due to its distinct characteristics with regard to the ownership structure of publicly listed companies and the protection of minority shareholders. We find that PE investors generate positive wealth effects for target shareholders of 5.90% around the event day (t=−1 to t=0). In addition, we find that the wealth effects of PE investor involvement in Germany are positively related to the targets tax liabilities and degree of undervaluation and negatively related to the targets leverage and the shareholding of the second largest ownership block. The latter effect can be interpreted as a supplementary monitoring effect of the management or a monitoring effect of the largest shareholder through which private benefits of control are reduced.

Do Corporate Governance Motives Drive Hedge Fund and Private Equity Fund Activities?: Corporate Governance Motives

We document empirical evidence that both hedge fund (HF) and private equity fund (PE) investments are driven by corporate governance improvements, but address different types of agency conflicts. Whereas HFs focus on firms without a controlling shareholder, in particular family shareholders, PEs invest in firms with low managerial ownership. Both appear to address free cash flow problems differently. Aiming at increasing dividends, HFs tend to use commitment devices that can be implemented over a short horizon. PEs are inclined to longer-term strategies: they target firms that are particularly well suited for leverage increases because of low expected financial distress costs.

Underwriter Reputation and the Quality of Certification: Evidence from High-Yield Bonds

This paper provides primary evidence of whether certification via reputable underwriters is beneficial to investors in the corporate bond market. We focus on the high-yield bond market, in which certification of issuer quality is most valuable to investors owing to low liquidity and issuing firms’ high opacity and default risk. We find bonds underwritten by the most reputable underwriters to be associated with significantly higher downgrade and default risk. Investors seem to be aware of this relation, as we further find the private information conveyed via the issuer-reputable underwriter match to have a significantly positive effect on at-issue yield spreads. Our results are consistent with the market-power hypothesis, and contradict the traditional certification hypothesis and underlying reputation mechanism.

Disentangling the Link Between Stock and Accounting Performance in Acquisitions

We study the accounting and stock performance of 4547 US acquisitions during 1989 and 2008. We categorise acquisitions into four types based on the four possible combinations of positive or negative abnormal stock performance and abnormal accounting performance. First, we compare the bidder, bid and target characteristics across the four types of acquisitions. We find significant differences. Second, with the help of existing theories we explain these differences in bidder, bid and target characteristics by differences in the acquisition motives.

Index Membership vs. Loss of Control: The Unification of Dual-Class Shares

A change in the index selection rules of Deutsche Borse provides a unique opportunity to investigate the drivers behind the decision to abolish dual-class shares. As of June 2002, selection is based on the market capitalization of the free-float of the more liquid share class rather than the overall market capitalization. As a result, firms have had to reassess the benefits from their dual-class shares in the light of the costs from dropping out of their index. Our findings suggest that index membership significantly affects the controlling shareholder’s motivation to unify preferred and common stock