Lynn Hodgkinson

The Motivation for Takeovers in the UK

The motives for takeovers in the UK are investigated by examining the correlations between wealth gains for the target and both acquirer wealth gains and total wealth gains. The results are sensitive to whether the gains are measured over a long or short window, the method of measuring abnormal returns, and whether controls are included for the form of the bid consideration and the sign of total bid gains. There is evidence of bids motivated by synergy, but there is also evidence of the presence of hubris and weak evidence of bids with an agency motivation. Once controls for bid consideration and the sign of total gains are introduced the explanatory power of the models increases substantially and diversity of results about bid motivation also increases.

Modes of Governance

The UK governance system is often seen as part of the common-law/Anglo-Saxon governance regime we share with our former colonies and the US. While this form of governance is seen as particularly favorable to shareholders’ rights in controlling the corporation, much depends on how avidly and flexibly these rights are enforced. Nor is the governance regimes impact upon corporations truly separable from the structure of ownership and control it reflects or the extent of product market competition that a nation or industry faces.

An examination of the information role of the yield spread and stock returns for predicting future GDP

This paper utilizes out-of-sample forecasting experiments to examine whether the yield spread or returns on stock indices provide information content for future real activity in Italy, the UK, USA and Germany. A variable is said to provide information content if it improves the quality of the forecast for the forecasted variable. Four forecasting models containing yield spread and stock return variables are tested during the period 1961 to 1996. The usefulness of the yield curve and stock returns to predict GDP differs across countries and over time and neither variable is found to consistently provide information content for forecasting economic activity throughout the study period.

Corporate Governance and Shareholder Franchise

This paper addresses a question arising out ofcalls for greater shareholder participation toensure accountability of management in publiclimited companies. It is argued here that theparticipation by shareholders in corporateelections is more difficult than it isenvisaged by those who issue clarion calls forshareholders to exercise their voting power.The exercise of the right to vote as ashareholder can be formulated as a game betweenshareholders and management and also amongstgroups of shareholders. The chances of anyparticular group of shareholders being able toinfluence policy depends on how other groupsof shareholders vote. Thus the organisationaltask in the exercise of the right to franchiseis more complicated than it is realised byenthusiasts for shareholder participation.

CEO pay in UK FTSE 100: pay inequality, board size and performance

In this paper we examine the costs of seemingly excessive pay awards to CEOs within the UK FTSE 100 in the last decade and the consequent growth in executive pay inequality. In presenting this evidence we describe variations in the whole distribution of executive pay, rather than invoking some arbitrary cut-off point, to determine how changes in shareholder value match with concurrent changes in the distribution of executive pay. We ask whether the impact of executive pay inequality is a function of board size, rendering the CEO pay slice measure problematic in this context? We then question whether the interaction of board size and corporate performance, as measured by shareholder returns, explain variations in the sensitivity of the pay–performance relationship for UK FTSE 100 executives. We advance the Gini coefficient as a preferable measure of executive pay inequality in order to capture the impact of perceived inequality upon corporate performance.

Capital Gains Tax Managed Funds and the Value of Dividends

The taxation of capital gains for Managed Investment Funds in New Zealand was dramatically changed in October 2007, putting these entities on a similar footing to private investors. Prior to this change most private investors were not taxed on capital gains from investments in New Zealand and Australian companies whereas Managed Funds were taxed on these gains. New Zealand company dividends carry imputation tax credits and thus had a tax advantage for Managed Funds before October 2007. After the change the value of dividends relative to capital gains declined for Managed Funds. Since other investors in New Zealand stocks were little affected by the capital gains tax change a decline in the market value of dividends would only be expected in stocks where Managed Funds were the marginal investors. There is evidence that the value of dividends declined after the tax change. However, this evidence is statistically weak, except in the case of stocks with high dividends per share.

Is an Investing Institution One Shareholder or a Collection of Funds

The paper examines whether the fund managers in a given investing institution behave in a co-ordinated manner, in terms of their trading around the announcement of a major takeover by a company in which the institution has two or more separate holdings. Our data show that many institutional holdings consist of subholdings managed by separate fund managers. We find that trading around takeover announcements is coordinated in a majority of cases, but there is material disagreement within institutions in a substantial minority of cases, depending on how disagreement is measured. This suggests that blocks, at the level of the institution, do not always exist in the sense of being controlled by a single agent. Institutional ownership is less concentrated than it might appear to be from lists of shareholders in annual reports and databases.

Nature of Ownership

The nature of ownership of UK companies has evolved over time and, in 2011, 43% of UK listed companies were held overseas. The impact of this increase in foreign ownership on the UK economy is discussed. The implementation of a central registry of company-beneficial ownership has been seen, by some, to be costly leading to some exemptions, but the outcome of a central registry is yet to be determined. Details of a major database providing ownership data are provided.

Historical Context and Codification of Corporate Governance

The UK governance system privileges shareholder rights as residual claimants on the profits of the corporation. But law constrains these rights to produce what has been called an “enlightened shareholder” regime for corporate control. Yet it is the decline of owners’ rights in the face of a diffuse shareholder base precedes any active attempt by the UK to encourage an active market in equity claims. Indeed the current limited liability [corporate form] only emerged quite late in our history, after gaining a somewhat disreputable reputation in the industrial revolution. Limited liability implies that the rights of a corporation must always be more than the sum of its individual shareholders’ rights. So we might ask who is to be the beneficiary of these additional rights?

The Market for Corporate Control

Bidders and targets in cross-border mergers, in both financial and non-financial industries, appear to perform better than purely in domestic takeovers although this may be due to differences in the bidders’ and targets’ corporate governance regimes. Research findings are, as yet, mixed as to whether private equity financed takeovers earn significant returns on exit. The impact of recent reforms to UK legislation concerning competition rules are yet to be fully understood but whilst it appears to have enabled anti-trust actions to be taken more quickly, some consider the reforms intrusive whilst others consider the reforms are insufficient.