Devra L. Golbe

Catch a wave: The time series behavior of mergers

This paper offers a direct econometric test of the proposition that U.S. merger activity has occurred in waves. The authors fit a set of sine waves to the annual time-series data on mergers and find that the sine curves generally provide significant explanatory power. The parameters are statistically significant and reasonable in magnitudes, and the implied timing of peaks and troughs in merger activity is close to the actual dates of the peaks and troughs in the data. Thus, this formal test confirms what others have observed impressionistically: the data are consistent with a wave characterization. Copyright 1993 by MIT Press.

Safety and Profits in the Airline Industry

It has been argued that there is a positive relationship between profitability and safety in the transportation industries. This paper analyzes a model of safety provision under uncertainty and tests the model using data from the US airline industry. Theory suggests that the sign of the relationship between profits and safety is indeterminate and depends on risk preferences and the structure of costs and demand. The empirical investigation suggests that safety and profits have no significant relationship. Thus, it does not appear that profit-reducing changes in regulation will lead to less safe airlines.

Unbundling the Voting Rights and Profit Claims of Common Shares

We analyze a model of a hostile takeover attempt in which shareholders are free to sell common-share voting rights as well as the shares themselves. Without taxation, only welfare-improving take-overs succeed. Allowing vote sales has no effect on the success of attempted takeovers or the profits of incumbent management or raiders. When taxes are levied, however, an inefficiently small number of value-increasing takeovers succeed if vote sales are prohibited. Allowing vote sales facilitates such takeovers and raises welfare. With taxation, incumbents would never prefer to defend against take-overs by purchasing votes, but raiders might well prefer this method.

Debt, Operating Margin, and Investment in Workplace Safety

We investigate how a firms financial performance affects workplace safety. We provide empirical estimates of the relationship between a firms financial condition and its investment in workplace safety using plant-level proxies for safety performance from OSHA records for thirteen large U.S. industries for the period 1972-87. Our results suggest that, at the lowest levels of operating margins, firms with higher operating margins have safer workplaces. Firms with more debt also have safer workplaces, but only when operating margins are relatively low. These results are consistent with a number of theoretical models in which financial factors influence operating decisions.

Risk-taking by firms near bankruptcy

Abstract Using the Rothschild-Stiglitz notion of mean-preserving spreads, I show here that, when ‘me-first’ rules are not enforced, increases in risk can make bankruptcy less likely.

Has deregulation decreased the risk of NYSE seat ownership

Abstract It is well known that regulatory change led to large capital losses for owners of New York Stock Exchange seats. I show here that deregulation may also have led to a decrease in the risk of seat-holding.

Bidder Incentives for Informed Trading Before Hostile Tender Offer Announcements

Legal constraints that require disclosure of a bid before a controlling interest is purchased give bidders an incentive to tip arbitrageurs before announcement. Because arbitrageurs are likely to have lower private tendering costs than other shareholders, tipping decreases the minimum successful bid price, which increases profits to the bidder. The incentive to leak information is negatively related to the amount of dilution the bidder anticipates, the degree to which the back-end price embeds any pre-announcement price increase arising from additional trading by arbitrageurs, and the size of the bidders toehold. It is positively related to the private tendering costs of the pivotal share.

Debt, Profitability, and Investment in Workplace Safety

We investigate how a firms financial performance affects workplace safety. We provide empirical estimates of the relationship between a firms financial condition and its investment in workplace safety using plant-level proxies for safety performance from OSHA records for thirteen large industries for the period 1972-87. Our results suggest that firms with higher operating margins are safer work places as, in general, are firms with more debt in their capital structure. These results are consistent with a number of theoretical models in which financial factors influence operating decisions.