Dennis P. Sheehan

The role of majority shareholders in publicly held corporations: An exploratory analysis

We analyze 114 NYSE- or AMEX-listed corporations with majority shareholders. Majority shareholders are approximately equally divided between corporations and individuals and are typically both directors and officers. When majority blocks trade, stock prices increase and there is substantial management turnover. Although majority shareholders are typically paid larger salaries than officers in diffusely held firms, the difference is small and of marginal significance. Investment policies, the frequency of corporate-control transactions, accounting return, and Tobins Q are similar for majority-owned and diffusely held firms. Differences in these dimensions do emerge, however, between firms with corporate and individual majority shareholders.

Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression

We document that ownership by officers and directors of publicly-traded firms is on average higher today than earlier in the century. Managerial ownership rises from 13 percent for the universe of exchange-listed corporations in 1935, the earliest year for which such data exist, to 21 percent in 1995. We examine in detail the robustness of the increase and explore hypotheses to explain it. Higher managerial ownership has not substituted for alternative corporate governance mechanisms. Lower volatility and greater hedging opportunities associated with the development of financial markets appear to be important factors explaining the increase in managerial ownership.

Private Placements and Managerial Entrenchment

Our evidence suggests that private placements of large-percentage blocks of common stock are often made to passive investors, helping management solidify their control of the firm. The purchasers’ passivity is documented though the rarity of their involvement in firm affairs, the absence of public conflict with management, and the paucity of post-placement acquisitions. Stock returns turn negative as the passivity and entrenchment is revealed; discounts to the purchasers appear to be compensation for the consequences of helping to entrench management. These conclusions conflict with the conventional wisdom that active purchasers of private placements provide valuable monitoring and certification services. ∗ Barclay is from the University of Rochester (barclay@simon.rochester.edu); Holderness is from Boston College (holderne@bc.edu); and Sheehan is from Pennsylvania State University (dps6@psu.edu). For their comments we thank Vladimir Atanasov, Gordon Hanka, Linda Miles, Jeffrey Pontiff, James Seward, and Karen Wruck. We thank Leslie DeSantis, Weihong Song, and Duncan Zhengs for research assistance. This research has been supported by a Research Incentive Grant from Boston College, which we gratefully acknowledge.

The pricing of equity offerings

Examination of 1,600 seasoned equity offerings reveals little evidence that underwriters systematically set offer prices below the market price on the major exchanges, though they may do so for NASDAQ issues. Quick round-trip transactions in seasoned offerings are not profitable, but subscribing to an offering and holding the stock for 30 days seems to be very profitable, especially in the NASDAQ market. In addition to seasoned offerings, we analyze 250 issues of new classes of preferred stock. These issues are not underpriced.

Monitoring an owner: The case of Turner broadcasting☆

Abstract Turner Broadcasting illustrates how organizational mechanisms can be adapted to prevent a majority owner from imposing costs on minority shareholders through inept management or opportunistic behavior. These mechanisms involve issuing preferred stock with unusual features, concentrating its ownership among a small group of investors, allowing the new preferred shareholders to elect several directors, and requiring supramajority approval of major management decisions by a reconstituted board of directors. The alienability of the preferred stock is restricted to help insure that its ownership stays concentrated and in the hands of those with the specific knowledge and incentives to be effective monitors.

The stylized facts about the behavior of manufacturers' inventories and backorders over the business cycle: 1959–1980☆

Recent theoretical work has highlighted the role of inventories in propagating business cycles. This paper attempts to provide an empirical foundation for current and future research on the role inventories play in business cycles. The evidence presented here indicates that inventories and backorders are major variables in predicting output fluctuations. Further, the evidence is that disaggregating inventories by stage-of-fabrication is important in predicting output. In concert with previous findings, our results suggest that disaggregated inventories ought to be a component of models of the business cycle.

Second-order properties of estimators of serial correlation from regression residuals

Abstract Second-order properties of estimators and tests offer a way of choosinf among aymptotically equivalent procedures. This paper studies the second-order terms of two estimators of serial correlation in the linear model. Using these second-order approximations, the maximum likelihood estimator is judge to be superior in terms of bias and variance. A small Monte Carlo experiment is done to assess the accuracy of the results.