Chad J. Zutter

Why do private acquirers pay so little compared to public acquirers

We find that the announcement gain to target shareholders from acquisitions is significantly lower if a private firm instead of a public firm makes the acquisition. Non-operating firms like private equity funds make the majority of private bidder acquisitions. On average, target shareholders receive 55% more if a public firm instead of a private equity fund makes the acquisition. There is no evidence that the difference in premiums is driven by observable differences in targets. We find that target shareholder gains depend critically on the managerial ownership of the bidder. In particular, there is no difference in target shareholder gains between acquisitions made by public bidders with high managerial ownership and by private bidders. Such evidence suggests that the differences in managerial incentives between private and public firms have an important impact on target shareholder gains from acquisitions and managers of firms with diffuse ownership may pay too much for acquisitions.

Why Do Private Acquirers Pay so Little Compared to Public Acquirers

We find that the announcement gain to target shareholders from acquisitions is significantly lower if a private firm instead of a public firm makes the acquisition. Non-operating firms like private equity funds make the majority of private bidder acquisitions. On average, target shareholders receive 55% more if a public firm instead of a private equity fund makes the acquisition. There is no evidence that the difference in premiums is driven by observable differences in targets. We find that target shareholder gains depend critically on the managerial ownership of the bidder. In particular, there is no difference in target shareholder gains between acquisitions made by public bidders with high managerial ownership and by private bidders. Such evidence suggests that the differences in managerial incentives between private and public firms have an important impact on target shareholder gains from acquisitions and managers of firms with diffuse ownership may pay too much for acquisitions.

Why Do Firms Go Public? Evidence from the Banking Industry

The lack of data on private firms has made it difficult to empirically examine theories of why firms go public. However, both public and private banks must disclose financial information to regulators. We exploit this requirement to explore the going-public decision. Our results indicate that banks that convert to public ownership are more likely to become targets than control banks that remain private. Banks that go public are also more likely to become acquirers than control banks. IPO banks grow faster than control banks after going public, although there is some evidence that their performance deteriorates.

Dual Class IPOs ARE Underpriced Less Severely

We analyze a sample of dual and single class initial public offerings (IPOs) to investigate whether empirical estimates of underpricing determinants are consistent across alternative measures of firm size and alternative techniques intended to account for underwriter price stabilization efforts. We find that results from long-standing methods for estimating underpricing relations are generally robust to ones choice of size proxy and are consistent with estimates obtained from censored regressions of first-day returns and from least squares regressions of longer horizon initial returns. We also confirm an existing finding in the literature that dual class IPOs endure less underpricing than do single class firms.

Does Target CEO Retention in Acquisitions Involving Private Equity Acquirers Harm Target Shareholders

While there is widespread concern that target CEO retention by the acquirer harms target shareholders when the acquirer is a private equity firm, CEO retention can also be valuable to private equity acquirers, and hence potentially benefit shareholders. We find that CEO retention does not harm target shareholders when the acquirer is a private equity firm. In fact, we show that, in acquisitions by private equity firms, better performing CEOs are more likely to be retained and target shareholders gain an additional 10% to 23% of pre-acquisition firm value when the CEO is retained compared to when the CEO is not retained. In contrast, shareholders of targets acquired by operating companies do not benefit from CEO retention. Finally, we find no evidence that the targets value is artificially depressed ahead of a private equity acquisition where the CEO is retained.

Industrial Diversification and Underpricing of Initial Public Offerings

Diversified IPOs, firms reporting more than one business segment at the time of going public, experience less underpricing than do IPOs by focused issuers. We explore two explanations for this phenomenon. Diversification may benefit IPO firms by reducing information asymmetries and hence, lowering underpricing costs. Alternatively, higher quality focused firms may underprice their shares more to signal their quality to the market. Though we find at least some evidence consistent with each explanation, a majority of the evidence favors a signaling story.

Conservatism and international IPO underpricing

We study the impact of country-level accounting conservatism on international IPO underpricing. Examining 13,285 IPOs from 36 countries, we find that IPOs are underpriced less in countries in which existing public firms practice more accounting conservatism. The link between conservatism and underpricing is robust to alternative measures of conservatism, country mean regressions, sample country exclusions, and endogenous treatment models. Consistent with the hypothesis that conservatism reduces underpricing by mitigating the impact of information asymmetries, we find that higher country-level conservatism is associated with lower country-level PIN values and that the negative relation between conservatism and underpricing is strongest for IPOs involving small firms in which information asymmetries are likely to be high. Lastly, we find evidence that legal origin, a factor linked to the practice of conservatism, influences the relations between underpricing and conservatism.RésuméNous étudions l’impact du conservatisme comptable d’un pays sur la sous-évaluation des offres publiques initiales (OPI) internationales. Examinant 13 285 OPI dans 36 pays, nous constatons que les offres publiques initiales sont moins sous-évaluées dans les pays où les entreprises publiques existantes pratiquent plus de conservatisme comptable. Le lien entre le conservatisme et la sous-évaluation est solide par rapport aux mesures alternatives au conservatisme, aux régressions moyennes par pays, aux exclusions d’un échantillon de pays et aux modèles de traitement endogène. Conformément à l’hypothèse que le conservatisme réduit la sous-évaluation en atténuant l’impact des asymétries d’information, nous constatons qu’un niveau plus élevé de conservatisme au niveau d’un pays est associé à des valeurs plus faibles de probabilités de négoce basées sur l’information (PBI) d’un pays et que la relation négative entre le conservatisme et la sous-évaluation est plus forte pour les OPI qui concernent des petites entreprises pour lesquelles les asymétries d’information risquent d’être élevées. Enfin, nous constatons que l’origine légale, un facteur lié à la pratique du conservatisme, influence les relations entre la sous-évaluation et le conservatisme.ResumenEstudiamos el impacto del conservadurismo contable a nivel país sobre la subvaloración de las ofertas públicas iniciales (IPO) internacionales. Examinamos 13.285 IPOs de 36 países, encontramos que las IPOs se subvaloran menos en países en los cuales existen empresas públicas que practican más conservadurismo contable. El vínculo entre conservadurismo y subvaloración es robusto a las medidas alternativas de conservadurismo, las regresiones de las medias de los países, las exclusiones del país de la muestra, y los modelos de tratamiento endógeno. Consistente con la hipótesis que el conservadurismo reduce la subvaloración mediante la mitigación del impacto de las asimetrías de información, encontramos que un nivel más alto de conservadurismo es asociado con un nivel más bajo en los valores PIN a nivel país y que la relación negativa entre el conservadurismo y las subvaloración es más fuerte en las IPOs que involucran empresas pequeñas en donde las asimetrías de información es probable sean altas. Finalmente, encontramos evidencias que el origen legal, un factor vinculado a la práctica de conservatismo, influencia las relaciones entre subvaloración y conservadurismo.ResumoNós estudamos o impacto do conservadorismo contábil ao nível do país na subprecificação de ofertas públicas iniciais (IPO) internacionais. Examinando 13.285 IPOs de 36 países, descobrimos que os IPOs são menos subprecificados nos países em que as empresas listadas existentes praticam um maior conservadorismo contábil. O vínculo entre conservadorismo e subprecificação é robusto para métricas alternativas de conservadorismo, regressões à média de países, exclusões de países de amostra e modelos de tratamento endógeno. Em consonância com a hipótese de que o conservadorismo reduz a subprecificação ao mitigar o impacto de assimetrias de informação, verifica-se que o maior conservadorismo a nível nacional está associado a valores PIN mais baixos e que a relação negativa entre conservadorismo e subprecificação é mais forte para IPOs envolvendo pequenas empresas, em que as elevadas assimetrias de informação são mais prováveis. Por fim, encontramos evidências de que a origem jurídica, um fator vinculado à prática do conservadorismo, influencia as relações entre subprecificação e conservadorismo.概要我们研究国家层面的会计保守主义对国际IPO抑价的影响。研究来自36个国家的13,285个IPO,我们发现,在现有公共公司实行更多会计保守主义的国家IPO定价较低。保守主义和抑价之间的关系对于保守主义措施替代,国家平均回归,国家排除抽样,以及内生处理模型是强的。与保守主义通过减轻信息不对称的影响来减少抑价的假设一致,我们发现,较高国家层面的保守主义与较低国家层面的PIN值相关,并且保守主义和抑价之间的负关系对于信息不对称可能性高的小公司的IPO来说是最强的。最后,我们发现证据表明,法律起源,与保守主义实践相关联的一个因素,影响抑价和保守主义之间的关系。

The Evolution of Equity Financing: A Comparison of Dual-Class and Single-Class SEOs

This study compares the SEO activity of young dual- and single-class firms. Because they hold stock with superior voting rights, dual-class insiders weigh different costs and benefits when issuing equity. Most importantly, the marginal dilution of voting power resulting from an SEO is lower in dual-class firms. This suggests that dual-class firms may issue equity more frequently, or under a different set of circumstances than singles. We find dual-class firms require a significantly lower post-IPO run-up in stock price to trigger an SEO issuance than do single-class firms. Moreover, returns prior to SEO announcements are smaller for dual-class firms, suggesting that the threshold at which SEO benefits outweigh costs is lower for these firms. We interpret this finding as evidence that single-class issuers signal more severe overvaluation when they sell their own shares in an SEO compared to dual-class insiders. Overall, SEO announcement returns are similar for both firm types.