Marc Schauten

Corporate Governance and the Value of Excess Cash Holdings of Large European Firms

We examine the relation between the quality of corporate governance and the value of excess cash for large publicly listed European firms from common-law and civil-law countries. Besides different law origins, we distinguish different dimensions of corporate governance by using ratings for the quality of Shareholder rights, Takeover defences, Disclosure and Board structure. We find that the value of excess cash is positively related to the Takeover defences score only. This finding is mainly driven by firms from common-law countries. If we focus on changes in the level of excess cash, we do find significant effects for civil-law country firms, where the marginal value of €1 of excess cash in a poorly governed firm is only €0.78 while the value is €1.10 for a good governed firm. We furthermore show that the spending of excess cash by poorly governed firms has a negative impact on their operating performance.

The Payment Method Choice in Dutch Mergers and Acquisitions

This paper examines which bidder, deal and target characteristics significantly affect the payment method choice in Dutch mergers and acquisitions. The final data sample consists of 227 mergers and acquisitions announced during the 10-year period between January 1996 and December 2005 by public bidders from The Netherlands. These bidders successfully acquired a public firm, a private firm or a subsidiary. We find that i) bidders with a intermediate fraction of closely held shares prefer cash more than bidders with a relatively low or high ownership stake; ii) large firms prefer cash more than small firms; iii) high-growth firms prefer equity more than low-growth firms; iv) relative large deals are more likely to be financed with stock than relative small deals; v) intra-industry deals are more likely to be financed with equity than cross-industry deals and vi) asset acquisitions are more likely to be financed with cash than stock acquisitions.

Optimal Capital Structure

Despite a vast literature on the capital structure of the firm there still is a big gap between theory and practice. Starting with the seminal work by Modigliani and Miller, much attention has been paid to the optimality of capital structure from the shareholders’ point of view. Over the last few decades studies have been produced on the effect of other stakeholders’ interests on capital structure. Another area that has received considerable attention is the relation between managerial incentives and capital structure. Furthermore, the issue of corporate control and, related, the issue of corporate governance, receive a lion’s part of the more recent academic attention for capital structure decisions. From all these studies, one thing is clear: The capital structure decision (or rather, the management of the capital structure over time) has to deal with more issues than the maximization of the firm’s market value alone. In this paper, we give an overview of the different objectives and considerations that have been proposed in the literature. We show that capital structure decisions can be framed as multiple criteria decision problems which can then benefit from multiple criteria decision support tools that are widely available.

Can the Market Divide and Multiply? A Case of 807 Percent Mispricing under Short-Selling Constraints

This paper documents a strong violation of the law of one price surrounding a large rights issue. If prices are right, the relation between the prices of shares and rights follows the outcome of a simple calculation. In the case of Royal Imtech N.V. in 2014, prices deviated sharply and persistently from the theoretical prediction. Throughout the term of the rights, investors were buying shares at prices that were many times what they should have been given the price of the rights. Short-selling constraints in the form of high recall risk and lacking stock lending supply are the most likely explanation for the failure of arbitrage as a safeguard of market efficiency. Still, it remains remarkable that investors were buying large volumes of shares at highly inflated prices in the presence of a cheap, perfect substitute.

Three discount methods for valuing projects and the required return on equity

In this paper we discuss the required return on equity for a simple project with a finite life. To determine a project’s cost of equity, it is quite common to use Modigliani and Miller’s Proposition II (1963). However, if the assumptions of MM do not hold, Proposition II will lead to wrong required returns and project values. This paper gives an example of how the cost of equity should be determined in order to obtain correct valuations. The methods we apply are the Adjusted Present Value method, the Cash Flow to Equity method and the WACC method.In this paper we discuss the required return on equity for a simple project with a finite life. To determine a project’s cost of equity, it is quite common to use Modigliani and Miller’s Proposition II (1963). However, if the assumptions of MM do not hold, Proposition II will lead to wrong required returns and project values. This paper gives an example of how the cost of equity should be determined in order to obtain correct valuations. The methods we apply are the Adjusted Present Value method, the Cash Flow to Equity method and the WACC method.

Three discount methods for valuing projects and the required return on equityTres métodos de descuento para valuar proyectos y la tasa requerida de rendimiento para el capital accionario

In this paper we discuss the required return on equity for a simple project with a finite life. To determine a project’s cost of equity, it is quite common to use Modigliani and Miller’s Proposition II (1963). However, if the assumptions of MM do not hold, Proposition II will lead to wrong required returns and project values. This paper gives an example of how the cost of equity should be determined in order to obtain correct valuations. The methods we apply are the Adjusted Present Value method, the Cash Flow to Equity method and the WACC method.In this paper we discuss the required return on equity for a simple project with a finite life. To determine a project’s cost of equity, it is quite common to use Modigliani and Miller’s Proposition II (1963). However, if the assumptions of MM do not hold, Proposition II will lead to wrong required returns and project values. This paper gives an example of how the cost of equity should be determined in order to obtain correct valuations. The methods we apply are the Adjusted Present Value method, the Cash Flow to Equity method and the WACC method.