Gayle R. Erwin

To live or let die? An empirical analysis of piecemeal voluntary corporate liquidations

Abstract This paper is an in-depth investigation of 61 publicly-traded firms that chose to liquidate voluntarily on a piecemeal basis during the 1970s and 1980s. In comparison with their industry peers, these firms have lower Tobins Q , a higher percentage of equity ownership by management and the board, a higher incidence of a member of the corporations founding family in a key executive position or on the board, and a higher incidence of asset sales and prior attempts to transfer control of the firm. The average excess stock return of 20% around liquidation announcements is positively correlated with the fraction of stock owned by management and the board. These results suggest that firms that make the value enhancing decision to voluntarily liquidate confront low future growth opportunities, but the absence of future growth opportunities is not sufficient to bring about this decision. It is also necessary that decision makers have a vested interest in the outcome, either because of their ownership stake or because of their family affiliation with the business, and that the valuation consequences of the decision are greater, the more closely aligned are managerial and shareholder interests.

Value creation in bundling utility mergers: A corporate focus anomaly

Abstract Recent empirical studies have documented the significantly positive monotonic relationship between changes in corporate focus and firm value. Focus-decreasing activities such as diversifying mergers have been shown to diminish firm value while focus-increasing activities, including divestitures of unrelated assets, exhibit a value-enhancing effect. However, many of these studies follow the convention of excluding utilities as their regulated industry makes then incomparable to unregulated industries. Examining only utility mergers and acquisitions, this study finds that only those which occur between utilities operating in different primary lines of business (“bundling” mergers) experience significant increases in firm value. Consistent with other studies, conglomerate mergers lead to a substantial decrease in firm value. Horizontal and vertical mergers lead to insignificant wealth gains. These results present an anomaly to the corporate focus theory and indicate that the regulation of utilities creates value for related diversification - contrary to the monotonic relationship exhibited in unregulated industries.