Jamshid Mehran

Reverse‐LBOs, re‐LBOs and informational asymmetry hypothesis of LBO transactions

Purpose - The purpose of this paper is to examine the informational asymmetry (informational advantage of managers) in leveraged buyout (LBO) transactions. Design/methodology/approach - Unlike previous studies of informational asymmetry in LBOs, this research uses a set of reverse-LBO and re-LBO firms. The paper proposes and empirically tests three hypotheses that draw on the informational advantage of managers in LBOs. Specifically, the value gain (VG) realized by the reverse-LBO firms is compared with that realized by a control sample of firms; the wealth distribution between managers and pre-buyout shareholders is studied; and, finally, the performance of re-LBO firms relative to reverse-LBO firms is evaluated. Findings - The results do not support the view that managers use buyouts to exploit their informational advantage. Specifically; the performance of LBO firms under the private ownership is comparable to those of matching public firms; the management teams return in a LBO deal is not significantly more than pre-buyout shareholders’ return; and repeating reverse-LBO firms (re-LBOs) do not necessarily perform better than the non-repeating reverse-LBO firms. Originality/value - While reverse-LBOs have been investigated to some extent in the prior literature, studies on re-LBOs are quite scant – although these transactions offer a new and interesting avenue to examine the motivations behind LBOs in general. The use of the entire LBO?-?reverse-LBO?-?re-LBO cycle in testing the informational advantage of managers is a novelty. It is hoped that re-LBOs will attract the amount of attention they deserve as these firms may offer interesting means to reinvestigate commonly debated theories of corporate finance.

L'Chaim: Jewish holidays and stock market returns

Purpose - The purpose of this paper is to investigate the impact of Jewish holidays on US stock market returns. Design/methodology/approach - The authors use event study and regression methodology to determine abnormal returns on Jewish holidays and windowed periods surrounding the day. In order to seclude the results to Jewish holidays, the authors control for several other known events that impact stock market returns. To substantiate claims of abnormal returns, the authors also use the Fama-French four-factor model to seek alpha and evidence returns on Jewish holidays. Findings - This study shows, during the 1990-2009 period, an increase in average daily returns 32 times greater on nine Jewish holidays than on the other trading days of the year. The demeanor of the specific Jewish holidays also influences stock market returns, as the market returns increase (decrease) on the joyous (solemn) Jewish holidays. Also, individual investors, rather than institutional investors, are a greater catalyst for the increased returns. Originality/value - Previous research details increased stock market returns on US holidays and several other events. However, no definable research exists on stock market returns on Jewish holidays. The findings in this paper are valuable to investors who event-trade, and are also valuable to investors and behavioral-finance researchers who seek to understand how demeanor and moods may impact buying/selling decisions.

Bad news bears: Effects of expected market volatility on daily tracking error of leveraged bull and bear ETFs

Purpose - – This study aims to look into how volatility significantly impacts the tracking error for daily-rebalanced leveraged bull and bear ETFs. Design/methodology/approach - – Using Morningstar return data and Chicago Board Options Exchange (CBOE) volatility index (VIX) data, the paper examines the daily tracking error for leveraged bull and bear ETFs. Tracking error is defined as the difference between the daily returns for a leveraged bull or bear ETF and the multiple of the daily return for that ETFs respective underlying benchmark index. Findings - – Changes in the market VIX of the CBOE have a significant and opposite effect on the daily returns for both leveraged bull and bear ETFs. Furthermore, these effects are more pronounced for bear ETFs than similarly leveraged bull ETFs. Research limitations/implications - – The sample period (June 19, 2006 to September 22, 2009) contains periods of extraordinarily high volatility. Considering that the VIX reached an all-time high during this period, the results may be time-period specific and may not translate to other time periods. Practical implications - – The implication is that market timing may be feasible for enhancing daily returns for both leveraged bull and bear ETFs. However, any specific timing strategies go beyond the scope of this paper. Originality/value - – In this study, the paper examined the effects of expected market volatility on the daily tracking error of leveraged bull and bear ETFs. Specifically, the paper performed multiple linear regression analysis using Morningstar return data for the ETFs and their underlying benchmark and CBOE VIX data. The findings suggest that market timing could be beneficial for increasing daily yields for leveraged and inverse ETFs.

Do Chinese banks perform better after IPOs

Purpose - – As part of the banking reform, major commercial banks in China went through initial public offerings (IPOs) in the past two decades. Has this change in the ownership structure led to improvement in their performance? With a comprehensive data set of Chinese banks over 1999-2010, the purpose of this paper is to investigate the effects of IPOs on bank performance in China. Design/methodology/approach - – The authors employ a stochastic frontier approach (SFA) to measure bank efficiency and assess the selection and dynamic effects of public listing. Findings - – The authors find strong selection effects. That is, banks that choose to go public are significantly more efficient than those that do not. However, the analysis of the dynamic effects shows no evidence that bank efficiency improves after going public, either in the short run or in the long run. The authors further look into bank performance around IPO events with non-parametric analysis and find that banks significantly outperform their counterparts prior to IPOs, but this superior performance disappears immediately after IPOs. This evidence is consistent with the “window dressing” hypothesis that firms time new issues to take advantage of windows of opportunity. Originality/value - – This is the first study that addresses the performance of IPO banks measured with SFA in China after 2005 when the major Chinese banks were listed.

Does dividend policy drive repurchases? An empirical study

Purpose - – The purpose of this paper is to investigate whether firms repurchase shares to meet or just beat their dividend target as managers perceive share repurchases are more flexible than dividends and managers have a strong desire to maintain dividend levels and dividend payout ratio of the firms. Design/methodology/approach - – The authors first run a Tobit regression to examine whether firms meeting or just beating the quarterly dividend per share threshold exhibit unusually high repurchases, controlling for the factors shown to affect repurchases. The authors then calculate abnormal repurchases and compare firms that would otherwise miss the benchmark with other firms. Findings - – The authors find that firms meeting or just beating the quarterly dividend per share threshold repurchase more shares than other firms, after controlling for the substitution effect, investment opportunities and financial performance. In addition, firms otherwise missing the quarterly dividend per share threshold repurchase abnormally more shares to meet the threshold. Originality/value - – The study contributes to the payout policy literature in the following ways. First, it extends the understanding of the association between dividend payout and repurchase. Second, it contributes to the threshold literature by showing that firms manipulate repurchases in addition to earnings to meet their quarterly dividend per share threshold. Third, it provides support to the survey evidence that firms have a strong desire to maintain their dividend policies.

Simultaneous Board and CEO Diversity: Does It Increase Firm Value?

There remain open questions regarding whether board of director ethnic and gender diversity increases or decreases firm value. Additionally, prior research has yet to examine the value effects of a diverse board in the presence of a gender/ethnic minority CEO. Using the KLD social ratings database, we examine 13 000 firm-years and provide robust evidence that board diversity increases firm value. However, we also show that any value added via board diversity is nullified when a diverse board operates in the presence of a female and/or minority CEO. Results suggest that a significant portion of the value in board diversity may come from gender/ethnic differences between the board members and the CEO. One implication of our study is that when hiring a CEO or electing directors relative gender/ethnic make-up is important.