Gregg A. Jarrell

Leadership Structure: Separating the CEO and Chairman of the Board

Shareholder activists and regulators are pressuring U.S. firms to separate the titles of CEO and Chairman of the Board. They argue that separating the titles will reduce agency costs in corporations and improve performance. The existing empirical evidence appears to support this view. We argue that this separation has potential costs, as well as potential benefits. In contrast to most of the previous empirical work, our evidence suggests that the costs of separation are larger than the benefits for most large firms.

Corporate Focus and Stock Returns

Abstract Greater corporate focus is consistent with shareholder wealth maximization. Diseconomies of scope in the 1980s are confirmed by a trend towards focus or specialization, a positive relation between stock returns and focus increases, and the failure of diversified firms to exploit financial economies of scope (coinsurance of debt or reliance on internal capital markets). Large focused firms were less likely to be subject to hostile takeover attempts than were other firms, but diversified firms were distinguished in the 1980s mostly by being relatively active participants, as both buyers and sellers, in the market for corporate control.

Dual-class recapitalizations as antitakeover mechanisms: The recent evidence

Abstract We report evidence on shareholder wealth effects of 94 firms recapitalizing with dual classes of common stock with disparate voting rights. We find significant, negative abnormal stock price returns at the announcement of the dual-class recapitalization. When we consider recapitalizations separately announced since the NYSE imposed a moratorium is June 1984 on the delisting of companies with dual classes of equity, we find significant, negative abnormal returns as compared with insignificant returns in the earlier period. Those firms recapitalizing from June 1986 through May 1987 experienced the most significant negative returns observed.

Change at the Exchange: The Causes and Effects of Deregulation

THE Securities Acts Amendments of 1975 instructed the Securities and Exchange Commission (SEC) to outlaw fixed brokerage rates on the New York Stock Exchange (NYSE) and to eliminate some other anticompetitive rules. Until then the price agreements had been enforced by the SEC. These amendments eliminated pricing practices that had prevailed for 180 years. They were passed after ten years of political struggle among the NYSE, the Department of Justice, and the SEC. Academics had long criticized the SECs toleration of fixed NYSE brokerage rates.1 They contended that the fixed commission rates were supracompetitive and that the price umbrella restricted trading, enriched brokers, and fostered economic inefficiency. In other words, they said, the NYSE was a cartel, and the SEC its enforcement arm. The few recent studies documenting some of the effects of the NYSE deregulation sup-

The Economic Effects of Federal Regulation of the Market for New Security Issues

The maintenance of competition protects the community against the evils of monopoly. But it affords no protection against the harm that may be done by competitors. Competing sellers and competing buyers may not be equally well informed, and those who possess information may take advantage of those who lack it. . . . Government is therefore concerned, not only with the preservation of competition, but also with the ways in which men compete. So laws have been enacted to equip traders with accurate information.1

Two-tier and negotiated tender offers: The imprisonment of the free-riding shareholder

Abstract We measure the differential effects on shareholder wealth and tendering behavior of any-or-all, two-tier and partial tender offers and find no evidence that shareholders are disadvantaged by front-end-loaded corporate takeovers. Shareholders fare as well when the terms of an offer for control are negotiated with target-firm management as when they are not. Most cash tender offers executed between 1981 and 1984 were negotiated, and almost all two-tier offers were negotiated.

Pro-producer regulation and accounting for assets: The case of electric utilities

Abstract This papers thesis is that rate-of-return regulation of the electric utility industry was a pro-producer regulatory policy, and that supra-competitive returns were earned by regulated utilities even while their accounting rate-of-returns met the ‘fair’ return constraint established by law. It is argued that this was accomplished by using the accounting system to revalue upward the asset bases of regulated utilities. The empirical results support this hypothesis in that utilities regulated by state commissions had abnormally high book values for their assets compared with unregulated utilities in 1917 and 1922.

Expected Inflation and the Constant‐Growth Valuation Model*

In the presence of inflation, the standard Constant-Growth valuation model found throughout the finance literature is not valid in cases where a company either (1) makes no net new investments or (2) invests only in zero Net Present Value projects. If expected inflation is positive, the generally accepted and widely used expression for the value of the firm under either of these two conditions seriously understates the true value of the firm, even with modest levels of inflation. Copyright (c) 2008 Morgan Stanley.

A proposal to stabilize stock prices: Comment

I n the Fall 1988 issue of this Journal, Robert A. Schwartz introduced a proposal to reduce excessive short-term price volatility of equity. Briefly, this proposal calls for issuing corporations themselves to inject capital into the market-making (specialist) system whenever the price of a stock varies by more than a pre-specified amount. For example, the issuing firm commits itself to buy (sell) a pre-specified amount of stock if the price of the stock declines (increases) by more than x%. Although events such as those witnessed October 19, 1987, raise legitimate questions about the adequacy of capital backing market-making systems and the effectiveness of such price stabilization efforts, we do not believe this particular proposal will rectify the problem of excessive volatility. A close analysis shows that this policy will reduce liquidity and will increase equity volatility permanently. These effects will probably increase the cost of raising equity capital exactly opposite from what Professor Schwartz predicts. We have three objections: First, by increasing leverage after market declines, this proposal exaggerates shocks in volatility. Second, the call auctions required by this proposal will result in numerous arbitrary trading halts and will reduce liquidity. Finally, Schwartz’s mechanized responses do not distinguish price movements attributable to information from those due to panic selling. Consequently, the arrival of important information to the market could result in unnecessary trading halts and inappropriate stock sales/repurchases .