Bill B. Francis

Financial market integration and the value of global diversification : evidence for US acquirers in cross-border mergers and acquisitions

In contrast to the previously documented cross-border discount, we find that there is positive cross-border effect for US acquirers during late 1990s and early 2000s. This is especially particular the case for those that acquire/merge with targets from segmented financial markets where acquirers experience significantly higher positive abnormal returns than those that acquire targets from integrated financial markets. Furthermore, firms acquiring segmented-market targets are also characterized by significantly higher post-merger operating performance improvement. The results indicate that the observed positive cross-border effect is mainly due to the increase in the number of transactions involving targets from segmented markets, in which the average firm experience significant financial constraints. We contend that value is created by a combination of firms with different financial market integration status, in which funds are provided to high cost firms. The finding that the value creation is even higher within the group of acquirers with a lower cost of capital provides additional support for our conjecture.

The Underpricing of Venture and Nonventure Capital IPOs: An Empirical Investigation

In this paper, we examine the premarket underpricing phenomenon within a group of venture-backed and a group of non-venture-backed initial public offerings (IPOs), using a stochastic frontier approach. Consistent with previous research, we find that venture-backed IPOs are managed by more reputable underwriters and generally are associated with less underwriter compensation. However, unlike other papers in the literature, we find that the initial-day returns of venture-backed IPOs on average, are, higher than the non-venture-backed group. We observe a significantly higher degree of premarket pricing inefficiency in the initial offer price of venture-backed IPOs. Further, our results show that a significant portion of the initial day returns is due to deliberate underpricing in the premarket.

Superexogeneity and the dynamic linkages among international equity markets

Abstract In this article, we combine the Johansen procedure for cointegration testing with tests of weak exogeneity and invariance in order to ascertain whether a system of equity markets is characterized by superexogeneity. Superexogeneity is rejected for the system comprised of stock indices of the US, UK, Germany and Japan. This finding implies that agents participating in these financial markets are forward looking, all markets are endogenous in our system and the assumption of stability of the asset demand function is questionable.

Twin Deficits: Apparition or Reality?

This paper uses cointegration and multicointegration analysis to explore the issue of twin deficits for the USA in the post-World War II period. The results suggest that prior to 1974 the systems of fiscal and foreign sector variables exhibit multicointegration. These results do not rule out short-run correlations between government deficits and external deficits. However, they do preclude the possibility that the twin deficit phenomenon describes a long-run structural relationship in the post-World War II, Bretton Woods era. In the more recent period, 1974 forward, neither system exhibits evidence of multi/cointegration. But, weak evidence of cointegration is present between fiscal deficits and trade deficits. Error correction models suggest that causality runs from internal to external deficits in the dynamic adjustment process. This evidence provides some support for the notion that more recently fiscal deficits may have contributed to external deficits. In combination with the results from the early sub-period, the evidence indicates that to the extent the twin deficit relationship exists, it is time specific and weak.

The Effect of State Antitakeover Laws on the Firm's Bondholders

We examine how state antitakeover laws affect bondholders and the cost of debt, and report four findings. First, bonds issued by firms incorporated in takeover-friendly states have significantly higher at-issue yield spreads than bonds issued by firms in states with restrictive antitakeover laws. Second, firms in takeover friendly states have significantly higher leverage than their counterparts in restrictive law states. Third, bond issues are associated with negative average stock price reactions among firms in takeover-friendly states, but positive stock price reactions among firms in restrictive law states. Fourth, existing bond values increase, on average, upon the introduction of Business Combination antitakeover law. These results indicate that state antitakeover laws tend to decrease bond yields and increase bond values, which is the opposite of their effect on equity values. This, in turn, implies that state laws help mitigate the agency cost of debt by shielding bondholders from expropriation in takeovers. Overall, the empirical evidence suggests that the effect of antitakeover provisions on firm value must take into account the impacts of both bondholders and stockholders.

Do Corporate Boards Affect Firm Performance? New Evidence from the Financial Crisis

This study uses the current financial crisis as a quasi-experiment to examine whether and to what extent corporate boards affect the performance of firms. Using cumulative stock returns over the crisis to measure of firm performance, we find that board independence, as traditionally defined, does not significantly affect firm performance. However, when we re-define independent directors as outside directors who are less connected with current CEOs, a measure we call true independence, there is a positive and significant relationship between this measure and firm performance. Second, outside financial experts are important for firm performance. Third, board meeting frequencies, director attendance behaviors, and director age also affect firm performance during the crisis. Overall, our results suggest that firm performance during a crisis is a function of firm-level differences in corporate boards.

Professors in the Boardroom and Their Impact on Corporate Governance and Firm Performance

Directors from academia served on the boards of around 40% of S&P 1,500 firms over the 1998-2011 period. This paper investigates the effects of academic directors on corporate governance and firm performance. We find that companies with directors from academia are associated with higher performance and this relation is driven by professors without administrative jobs. We also find that academic directors play an important governance role through their advising and monitoring functions. Specifically, our results show that the presence of academic directors is associated with higher acquisition performance, higher number of patents and citations, higher stock price informativeness, lower discretionary accruals, lower CEO compensation, and higher CEO forced turnover-performance sensitivity. Overall, our results provide supportive evidence that academic directors are valuable advisors and effective monitors and that, in general, firms benefit from having academic directors.

Emerging Market Liberalization and the Impact on Uncovered Interest Rate Parity

A shock absorbing tow bar for connection between the accumulating trolley and load carriage of a power and free conveyor system is disclosed. The tow bar includes one component that is connectable to the accumulating trolley and another that is connectable to the intermediate trolley of the load carriage. Limited relative shifting is permitted between the components of the tow bar. Moreover, the components are threadably intercoupled so that such relative shifting requires a screwing or unscrewing action that serves to cushion movement between the accumulating trolley and load carriage.

The Impact of CFO Gender on Bank Loan Contracting

Motivated by recent studies that show female CFOs are more risk averse than male CFOs when making various corporate decisions, we examine whether banks take into consideration the gender of CFOs when pricing bank loans. We find that in our sample, firms under the control of female CFOs on average enjoy about 11% lower bank loan price than firms under the control of male CFOs. In addition, loans given to female CFO-led companies have longer maturities and are less likely to be required to provide collateral than loans given to male CFO led companies. Our results are robust to a series of robustness tests, such as a firm and year-fixed effect regression, a Heckman two-stage self selection model, a propensity score match method and a differences-in-differences approach. Overall, our results suggest that banks tend to recognize the role of female CFOs in providing more reliable accounting information ex ante and reducing default risk ex post, and grant firms with female CFOs lower loan price and more favourable contract terms.

Are CFOs’ Trades More Informative than CEOs’ Trades?

We investigate whether trades made by chief financial officers (CFOs) reveal more information about future stock returns than those by chief executive officers (CEOs). We find that CFOs earn statistically and economically higher abnormal returns following their purchases of company shares than CEOs. During 1992–2002, CFOs earned an average 12-month excess return that is 5% higher than that by CEOs. The superior performance by CFOs occurs notwithstanding controls for risk factors and persists even after their trades are publicly disclosed. Further analysis shows that CFO purchases are associated with more positive future earnings surprises than CEO purchases, suggesting that CFOs incorporate better information about future earnings.