B. Burcin Yurtoglu

The effects of mergers: an international comparison

This paper analyzes the effects of mergers around the world over the past 15 years. We utilize a large panel of data on mergers to test several hypotheses about mergers. The effects of the mergers are examined by comparing the performance of the merging firms with control groups of nonmerging firms. The comparisons are made on profitability and sales. The results show that mergers on average do result in significant increases in profits, but reduce the sales of the merging firms. Interestingly, these post merger patterns look similar across countries. We also did not find dramatic differences between mergers in the manufacturing and the service sectors, and between domestic and cross-border mergers. Conglomerate mergers decrease sales more than horizontal mergers. By separating mergers into those that increase profits and those that reduce them and by then examining the patterns of sales changes following the mergers, we determine the effects of mergers on efficiency and market power. Our results suggest that those mergers that decrease profits and efficiency account for a large proportion. However, we can also identify mergers that increase profits by either increasing market power or by increasing efficiency. The first conclusion seems to be a more likely explanation for large companies, whereas the latter is likely to be true for small firms. ZUSAMMENFASSUNG - (Die Effekte von Fusionen: Ein internationaler Vergleich) Dieser Artikel analysiert die Effekte von Fusionen, die weltweit uber die letzten 15 Jahre stattgefunden haben. Wir vergleichen die Gewinn- und Umsatzentwicklung von fusionierenden Firmen mit der Entwicklung von nicht-fusionierenden Firmen. Die Resultate zeigen, dass Fusionen im Durchschnitt zu signifikant hoheren Profiten fuhren, aber dass die Umsatze im Vergleich zur Kontrollgruppe zuruckbleiben. Interessanterweise sind diese Effekte bei Vergleichen zwischen den verschiedenen Landern, bei einem Vergleich zwischen Industriesektor und Dienstleistungssektor bzw. zwischen nationalen und grenzuberschreitenden Fusionen ziemlich ahnlich. Konglomerate Fusionen reduzieren die Umsatze mehr als horizontale Fusionen. Um die Effekte der Fusionen auf die Marktmacht bzw. die Effizienz zu analysieren, teilen wir zuerst die Fusionen in gewinnsteigernde und gewinnreduzierende Fusionen, um dann die Umsatzentwicklung zu betrachten. Unsere Resultate zeigen, dass ein groser Prozentsatz der Fusionen die Gewinne und die Effizienz reduzieren. Wir konnen jedoch auch Fusionen identifizieren, die die Gewinne entweder durch Marktmacht- oder Effizienzsteigerungen erhohen. Die erste Erklarung ist wahrscheinlicher fur grose Firmen, die zweite fur kleine Firmen.

Ownership, Control and Performance of Turkish Listed Firms

The paper describes the main characteristics of ownership structure of the Turkish companies listed on the Istanbul Stock Exchange. We present information on the pyrimidal and complex ownership structures within business groups, on the main owner classes, and on changes in large shareholdings. Ownership is highly concentrated in Turkey, families being the dominant shareholders. Changes in large shareholdings do not suggest the existence of an active market for share stakes. We also show that concentrated ownership and pyramidal structures have a negative effect on performance as reflected in lower return on assets, market to book ratios and dividend payments. We conclude by discussing some important problems introduced or fostered by the presence of this type of ownership structure.

Persistence of Firm-Level Profitability in Turkey

The dynamics of company profits for 172 of the largest manufacturing firms in Turkey are studied. A time-series analysis is used to estimate the long-run projected profits and firm-specific speed of adjustment parameters that measures the rate at which short-run rents are eroded. While persistent profitability differences across firms are observed, there is also a moderately quick erosion of rents except for the most highly profitable firms. Firm characteristics rather than industry effects account for the differences in permanent profits. Contrary to the widespread view that developing countries suffer from uncompetitive markets, the results in this paper suggest that the intensity of competition in Turkey is no less than in developed countries and similar to other developing countries.

The Determinants of Merger Waves

One of the most conspicuous features of mergers is that they come in waves, and that these waves are correlated with increases in share prices and price/earnings ratios. We test four hypotheses that have been advanced to explain merger waves: the industry shocks, q-, overvaluation and managerial discretion hypotheses. The first two are neoclassical in that they assume that managers maximize profits, mergers create wealth, and the capital market is efficient. The last two, behavioral hypotheses relax these assumptions in different ways. We test the four hypotheses by estimating models of the amounts of assets acquired by firms, models that identify the characteristics of targets, and estimates of the returns to acquirers’ shareholders. Although some support is found for each of the four hypotheses, most of the evidence favors the two behavioral hypotheses. ZUSAMMENFASSUNG - (Die Determinanten von Fusionswellen) Es ist eines der auffallendsten Merkmale von Unternehmenszusammen-schlussen, dass sie in Wellen stattfinden und dass diese Wellen mit dem Anstieg der Aktienkurse und des Preis/ Ertragsverhaltnisses zusammen hangen. Wir untersuchen vier Hypothesen, die als Erklarung von Unternehmenszusammenschlussen genannt werden: die der Industrieschocks, die q-Hypothese, die Hypothese der Uberbewertung und die Hypothesen des Ermessensspielraums von Managern. Die ersten zwei sind neoklassischer Natur insofern als sie davon ausgehen, dass Manager Gewinne maximieren, Unternehmenszusammenschlusse Reichtum schaffen und der Kapitalmarkt effizient ist. Die zwei letzteren sind Verhaltenshypothesen, die die neo-klassischen Annahmen (auf unterschiedliche Weise) lockern. Wir untersuchen die vier Hypothesen, indem wir Modellschatzungen der von Unternehmen akquirierten Aktien vornehmen. Dabei werden in den Modellen die Charakteristika der bei Zusammenschlussen aufgekauften Unternehmen identifiziert und die Rendite fur die Aktionare des aufkaufenden Unternehmens geschatzt. Auch wenn alle vier Hypothesen in gewisser Hinsicht Bestatigung finden, untermauern die meisten Belege die zwei Verhaltenshypothesen.

Marginal q, Tobin’s q, Cash Flow, and Investment

Many studies of the determinants of investment use Tobin’s q to control for the investment opportunities of a firm. Tobin’s q roughly measures the average return on a firm’s capital anticipated by the market. More relevant for investment decisions, however, is the marginal return on capital. In this paper we estimate investment and research and development (R&D) equations using a measure of marginal q. We use marginal q to identify the existence of cash constraints and managerial discretion and as a separate explanatory variable. For a sample of 560 U.S. firms observed over the 1977–1996 period we present evidence confirming the existence of both cash constraints in some companies and managerial discretion in others.

Demand estimation and market definition for broadband Internet services

This paper analyses residential demand for internet access in Austria with a focus on broadband internet connections. Austria has a cable network coverage of about 50% and is, therefore, a good candidate to analyse the elasticity of demand for DSL where cable is available and where it is not. We also include mobile broadband via UMTS or HSDPA in our analysis. We estimate various nested logit models and derive conclusions for market definition. The estimation results suggest that the demand for DSL is elastic and that cable networks are likely to be in the same market as DSL connections both at the retail and at the wholesale level. We discuss possible implications for the regulation of wholesale broadband access markets.

Average q, marginal q, and the relation between ownership and performance

Using average performance measures – as the literature does - to investigate the relation between ownership structure and performance suffers from severe drawbacks. We propose a marginal Tobin’s q and argue for its superiority.

Ownership Structure and Executive Compensation in Germany

We analyze the relationship between the ownership structure and executive compensation in a sample of large listed German companies over the period from 1987 to 2003. Our findings suggest that executive compensation is a substantial fraction of corporate earnings and it reflects the existence of agency problems caused by the separation of ownership and control. Lack of control by ownership enables management to extract higher executive compensation. Identity of owners has a significant influence on the level of executive compensation. Whereas bank ownership substantially reduces the level of pay, family ownership has a significantly positive impact. The link between performance and compensation is dramatically weaker in firms where ultimate owners increase their voting rights in excess of their cash flow rights. The estimated pay-for-performance sensitivities are consistent with the view that concentrated owners have better opportunities for supervision.

Country Legal Environments and Corporate Investment Performance

Abstract In recent years considerable attention has been devoted to differences across countries in the institutional environments in which corporations operate, and the consequences of these institutional differences for corporate performance. In this paper we test for the presence of differences in corporate performance across 38 countries, and in particular whether these differences are related to the types of legal systems existing in each country. To measure corporate performance we estimate returns on investment relative to company costs of capital in each country. We find significant differences in the investment performance of corporations across our sample of countries. Companies in countries with English-origin, common law legal systems perform significantly better on average than do those in civil law systems.

The Impact of Corporate Governance Structures on the Corporate Investment Performance in Turkey

In spite of the fact that most research has concentrated on the typical agency problem between managers and dispersed shareholders, in many countries large shareholders are much more frequently observed than firms with dispersed ownership structures. While large shareholders are perceived as a potential solution to the typical agency problem between managers and dispersed shareholders, less research has been done on the costs of large shareholders. One important issue in this literature is that deviations of cash flow rights from voting rights often result in substantial value discounts. In this paper we test for the impact of such deviations on corporate investment performance in Turkey. To measure corporate investment performance we estimate returns on investment relative to company costs of capital, a methodology that overcomes the endogeneity problem, which is known to contaminate results in the empirical corporate governance literature. Consistent with existing studies, we find that the average Turkish listed company has a return on investment which is less than its cost of capital. We also report significantly better investment performance for companies that do not deviate from one share-one vote by using pyramidal ownership structures, dual-class shares and other devices that enhance the control power of large shareholders beyond their cash flow rights. We also find that business group membership improves the investment performance and relative market valuation of companies. Copyright (c) 2006 The Authors; Journal compilation (c) 2006 Blackwell Publishing Ltd.