Erik Lie

On the Timing of CEO Stock Option Awards

This study documents that the abnormal stock returns are negative before unscheduled executive option awards and positive afterward. The return pattern has intensified over time, suggesting that executives have gradually become more effective at timing awards to their advantage, and possibly explaining why the results in this study differ from those in past studies. Moreover, I document that the predicted returns are abnormally low before the awards and abnormally high afterward. Unless executives possess an extraordinary ability to forecast the future marketwide movements that drive these predicted returns, the results suggest that at least some of the awards are timed retroactively.

Operating Performance and the Method of Payment in Takeovers

This study investigates the relation between the method of payment in acquisitions, earnings management, and operating performance for a large sample of firms that conducted acquisitions between 1985 and 1997. Prior to their acquisitions, acquirers exhibit levels of operating performance that exceed that of their respective industry peers. We find no evidence that acquirers manage their earnings prior to acquisitions, despite the possible incentives of managers who plan stock-based acquisitions to temporarily inflate their stocks purchasing power. Subsequent to acquisitions, acquirers continue to exhibit superior performance relative to their industry and experience significantly higher levels of operating performance than control firms with similar pre-event operating performance. Although the extant literature documents significant relations between the form of acquisition payment, announcement returns, and the post-acquisition excess return of acquirers, we find no evidence that the method of payment conveys information about the acquirers future operating performance.

What Fraction of Stock Option Grants to Top Executives Have Been Backdated or Manipulated

We estimate that 13.6% of all option grants to top executives during the period 1996--2005 were backdated or otherwise manipulated. Our study primarily focuses on grants that were unscheduled and at-the-money, of which we estimate that 18.9% were manipulated. The fraction is 23.0% before the new two-day filing requirement took effect on August 29, 2002, and 10.0% afterward. For the minority of grants that are not filed within the required two-day window, the fraction of manipulated grants remains as high as 19.9%. We further find a higher frequency of manipulation among tech firms, small firms, and firms with high stock price volatility. In addition, firms that use smaller (non-big-five) auditing firms are more likely to file their grants late. Finally, at the firm level, we estimate that 29.2% of firms manipulated grants to top executives at some point between 1996 and 2005.

A Comparison of the Motivations for and the Information Content of Different Types of Equity Offerings

We examine the choice of equity offering type and the accompanying information content using a sample of 4,708 equity offerings announced between 1980 and 1998. We find evidence that announcements of regular equity offerings involving primary shares convey unfavorable information about future operating performance, while announcements of regular offerings of secondary shares and shelf registrations, if anything, convey favorable information. Further analysis suggests that firms sell equity in regular offerings to take advantage of temporarily high equity values, while firms sell equity in rights offerings or file shelf registrations when their market value is low and their financial situation tight.

Detecting Abnormal Operating Performance: Revisited

Firms that undertake corporate events often exhibit atypical financial characteristics, such that future performance might be expected to change even before the event is announced. I investigate five methods for generating control samples in various sampling situations. The results indicate that the methods sometimes produce severely biased test statistics. Overall, the method that generates control firms with similar prior levels and changes of performance and similar market-to-book ratios produces the most reliable test statistics. Furthermore, I find that it is more important to control for levels of performance than for changes in performance and market-to-book ratios.

Financial Flexibility, Performance, and the Corporate Payout Choice

This study examines the effect of financial flexibility and the level and certainty of operating performance on the choice to change dividends, pay special dividends, and repurchase shares. Firms that increase payouts have excess financial flexibility and exhibit positive concurrent income shocks and decreases in income volatility, but there is limited evidence of subsequent performance improvements. The results are opposite for firms that cut dividends. Thus, the decision to alter payout levels appears to convey information about contemporaneous income and changes in operating risk.

Earnings signals in fixed-price and Dutch auction self-tender offers

Abstract Studies by Vermaelen (1981) and others indicate that the positive excess stock returns around self-tender offer announcements are the result of a signal of future earnings improvements. Comment and Jarrell (1991) , Lee, Mikkelson and Partch (1992) and Persons (1994) argue that the signal in fixed-price self-tender offers should be stronger than the signal in Dutch auction self-tender offers. This study tests whether the earnings improvement following fixed-price self-tender offers is greater than that following Dutch auction self-tender offers. We find some evidence that earnings improve following both types of self-tender offers. However, we find no difference in earnings improvement between the two types of offers.

Price uncertainty and corporate value

This study examines the sensitivity of equity values of oil producers to changes in the uncertainty of future oil prices. We document that this sensitivity is negatively correlated with a firms debt ratio and its production costs. These results indicate that companies that are more likely to experience financial distress or underinvestment from low cash flows are adversely affected by increases in the uncertainty of future cash flows. We conclude that corporate risk management can increase shareholder value by reducing the expected costs of financial distress and underinvestment.

Do Firms Undertake Self‐Tender Offers to Optimize Capital Structure?*

This study investigates capital structure around 286 self-tender offers from 1980 to 1997. Firms that undertake self-tender offers generally have debt ratios below their predicted levels before the offers. The debt ratios following nondefensive self-tender offers are close to predicted levels, while the ratios following defensive self-tender offers are above predicted levels. Further, 20% and 43% of the debt ratings are downgraded following nondefensive and defensive self-tender offers, respectively. Finally, the increases in debt ratios around the offers are negatively related to the difference from the predicted debt ratio before the offers.

A survey of evidence on domestic and international stock exchange listings with implications for markets and managers

Abstract As new equity markets continue to emerge worldwide, the topic area of stock exchange listings has sparked interest among financial scholars and corporate managers alike. In this article, we review and synthesize empirical studies that examine both new and dual international and intranational listings of common stocks. The studies that we review have been conducted to provide managers and policy makers with information about the effects of listing on stock prices and to use listings as a venue to provide insights about market organization, market micro-structure, factors that determine stock prices and returns, and international capital market integration. In general, new listings are associated with an increase in stock value and no change in risk.