Laura Casares Field

Takeover Defenses of IPO Firms

Many firms deploy takeover defenses when they go public. IPO managers tend to deploy defenses when their compensation is high, shareholdings are small, and oversight from nonmanagerial shareholders is weak. The presence of a defense is negatively related to subsequent acquisition likelihood, yet has no impact on takeover premiums for firms that are acquired. These results do not support arguments that takeover defenses facilitate the eventual sale of IPO firms at high takeover premiums. Rather, they suggest that managers shift the cost of takeover protection onto nonmanagerial shareholders. Thus, agency problems are important even for firms at the IPO stage. Copyright The American Finance Association 2002.

Are Busy Boards Detrimental

Busy directors have been widely criticized as being ineffective. However, we hypothesize that busy directors offer advantages for many firms. While busy directors may be less effective monitors, their experience and contacts arguably make them excellent advisors. Among IPO firms, which have minimal experience with public markets and likely rely heavily on their directors for advising, we find busy boards to be common and to contribute positively to firm value. Moreover, these positive effects of busy boards extend to all but the most established firms. Benefits are lowest among Forbes 500 firms, which likely require more monitoring than advising.

Investment bank reputation and relaxed listing requirements: Evidence from infrastructure firm IPOs in Hong Kong

Abstract In early 1996, the Stock Exchange of Hong Kong allowed firms focusing on infrastructure projects to issue initial public offerings (IPOs) under a relaxed set of listing requirements, allowing these firms to go public with a shorter history or lower profitability levels. We provide evidence that these firms are no more speculative than firms listing under the regular requirements. To the contrary, we find that firms listed under the relaxed requirements are taken public by reputable investment banks and that these firms have characteristics that otherwise mitigate their lack of earnings history. These patterns are consistent with investment banks avoiding highly speculative issues to protect their reputations.

The Thrift IPO as the First Stage of its Subsequent Sale

Over one-third of the thrifts that had an initial public offering (IPO) of stock between 1988 and 1992 were acquired within five years of the IPO. We compare the thrifts acquired as public firms to (1) those that go public and remain independent and (2) those that sell themselves privately via merger conversion. Prior to the IPO, publicly acquired thrifts have low risk relative to independent thrifts; a reflection of differing motivations for going public—grooming the firm for sale versus continued growth. Publicly acquired thrifts are over twice the size of privately sold thrifts, suggesting that the costs of going public are a factor in deciding whether to sell the firm privately or publicly.

Does Diversity Pay in the Boardroom

Minority and female directors earn significantly lower compensation than their peers serving within the same board despite having superior qualifications on average. This lower compensation is largely a function of board responsibilities. Although diverse directors are more likely to serve on certain committees, they are less likely to serve in key leadership positions associated with higher levels of pay such as committee chairs, Lead Director, or Chairman of the Board. Further, they are less likely to earn income beyond the formulaic components of director compensation. Evidence from director elections suggests shareholders value diverse directors and that these results are not attributable to omitted variables.

Contrasts in Governance: Newly Public Firms versus Mature Firms

While the percentage of mature firms with classified boards or dual class shares has declined by more than 40% since 1990, the percentage of firms going public with these structures has doubled over the same period. By examining voting patterns, changes in firm types going public, and governance changes over time, we test whether IPO firms implement these structures optimally or whether they are utilized to allow insiders to protect their private benefits of control. Evidence suggests that the Optimal Governance hypothesis best explains IPO firms’ use of classified boards, but the Agency hypothesis has more power to explain their use of dual class shares.

The Consequences to Analyst Involvement in the IPO Process: Evidence Surrounding the JOBS Act

The JOBS Act allows certain analysts to be more involved in the IPO process, but does not relax restrictions on analyst compensation structure. We find that these analysts initiate coverage that is more optimistically biased, less accurate, and generates smaller stock market reactions. Investors purchasing shares following these initiations lose over 3% of their investment by the firm’s subsequent earnings release. By contrast, issuers, analysts, and investment banks appear to benefit from this increased bias, as optimism is more positively associated with proxies for firm visibility and investment banking revenues when analysts are involved in the IPO process.