Milena Petrova

Wealth Effects of Diversification and Financial Deal Structuring: Evidence from REIT Property Portfolio Acquisitions

This study examines the strategic characteristics and shareholder wealth effects of a popular vehicle for Real Estate Investment Trust growth in the 1990s: the acquisition of a portfolio of properties from a single seller. We examine a sample of 209 REIT portfolio acquisitions during 1995-2001. We observe a wide variety of financing strategies and find an array of different categories of sellers. Contrary to results reported in real estate transactions of this sort in the past, we find that announcement-period shareholder returns are significantly positive in the aggregate. We present evidence that excess returns to acquirers result from (1) wealth benefits received when companies reconfirm their geographical focus in the acquisition, (2) positive information conveyed by the use of project-specific private debt and (3) a positive signal sent to the market when transactions are financed by stock privately placed with financial institutions. Copyright 2003 by the American Real Estate and Urban Economics Association

Value Creation in REIT Property Sell-Offs

We examine major sales of real property by public U.S. Real Estate Investment Trusts (REITs) 1992-2002. We find that abnormal shareholder returns are significantly positive, a result that is consistent with findings for conventional firms that sell off real estate. Because REITs do not pay taxes, this finding supports the view that abnormal returns in real estate sell-offs by all types of firms are derived largely from asset allocation efficiencies and do not result exclusively from tax benefits. Shareholder returns are lower in sell-offs motivated by a desire to reduce long-term debt, as is consistent with financial theory regarding the information content of leverage decisions. Returns are inversely related to the firms operating performance prior to the sell-off announcement, further supporting the case that improved asset efficiencies create value in real estate sell-offs. Copyright 2006 American Real Estate and Urban Economics Association

Corporate Social Performance, Stakeholder Coalitions, Corporate Governance and Performance

Using resource dependence perspective we examine the relationship between different stakeholder groups and firm performance. Our results indicate that different stakeholder groups have different levels of salience for firm’s financial performance. Proactive policies with respect to employees, consumers and diversity show the maximum beneficial effects. Our results also indicate that commitment-based work practices help firms improve their capacity to benefit from their performance on other CSP domains, which we believe indicates preliminary support for the concept of stakeholder influence capacity.

The Choice of Public vs. Private Equity: Evidence from the SEO and Pipe Markets

We examine the determinants of the choice of private versus public equity as a source of financing. We study private investments in public equity and seasoned equity offerings during 1996 to 2006, and analyze the short term and long term abnormal returns in SEO and PIPE transactions and their determinants. We find that PIPE issues have higher discount than SEO deals based on risk adjusted abnormal returns, however our long run analysis suggests that PIPE issuers outperform SEO firms. We employ a matched sample analysis based on industry, firm size and profitability for PIPE and SEO issues in the USA and document that firms that are more likely to use PIPE tend to be smaller, riskier and high growth companies, compared to SEO issuers. Based on our matched sample analysis, PIPE issuers are less transparent, more cash restricted and facing higher bankruptcy cost at issue than are SEO issuers. Finally, we observe that the issue discounts for PIPEs and SEOs are not different for the matched sample. Therefore when total cost of equity offering is considered PIPE may be a lower cost alternative for firms with certain characteristics than using SEO.

Increasing Gender Diversity in Corporate Boards: Are Firms Catering to Investor Preferences?

We examine the drivers of increasing women’s representation on boards in American firms. During 1998-2014, the proportion of firms with female directors on their boards almost doubled to approximately 78%, while the percentage of female directors increased almost five-fold to a share of 15%. Our analysis shows that the documented increase in female representation on corporate boards is driven by the increasing propensity of firms to add more female directors, rather than changing firms’ characteristics. We use the catering theory to explain firms’ propensity to increase (or decrease) their board gender diversity, and show that when the premium to have women on board is positive (negative), firms are more likely to add (replace) female directors. We further find that firms with more women on their boards are historically associated with higher valuation premium. Finally, we observe that the magnitude of board gender diversity changes is positively related to the change in the lagged gender diversity premium. Our results indicate that board gender diversity can increase value in firms, catering to the demand of investors for gender-diversified boards.

The Role of Managerial Incentive and Corporate Governance in Asset Restructuring: New Perspectives from Equity Carve-Outs

We investigate the effect of corporate governance on equity carve-out decisions during the period of 1990 to 2014. Consistent with the notion that managerial incentives drive corporate decisions, we find that firms where the CEO and management have larger stock ownership are more likely to carve-out their subsidiaries. Larger firms with prior poor performance are also more likely to carve-out their divisions. Among equity carve-out parents, larger firms with higher profitability, higher managerial ownership and CEO incentive-based compensation tend to retain higher portions of their subsidiaries. We finally demonstrate that for wealth-enhancing strategic decisions such as equity carve-outs CEO tenure and classified board are negatively related to value, while outsider dominated boards are perceived positively by the investors. Our results offer new insights on the role of managerial incentive and corporate governance in asset restructuring.

Security Voting Structure and Firm Value: Synthesis and New Insights from Emerging Markets

The value of vote hypothesis states that the value of differential voting rights reflects the value of private benefits of control enjoyed by controlling shareholders with superior voting rights at the expense of minority shareholders with lower voting rights. Although the extant evidence is generally consistent with this hypothesis, it is inconclusive, and based mainly on studies in developed economies. We first synthesize the evidence on this issue in the emerging economies. Next, we provide new insight on this subject with description and analysis of a proposed regulatory change for removal of the 10 % voting cap in the banking sector in India in 2005. We hypothesize that removal of the voting cap would increase the probability of a takeover and induce positive value gain for banks that the proposal relates to. Consistent with our prediction, we observe significant abnormal returns of 7.8 % for private Indian banks over the 2-day interval surrounding the announcement. Cross-sectional analyses further reveal that the valuation gain is inversely proportional to the bank’s foreign and insider ownership. This study makes important contributions to the growing literature on the valuation impact and efficiency gains of liberalization of foreign ownership restrictions in emerging markets.

Why Do Public Firms Issue Private Equity

We examine the determinants of placing equity privately vs. publicly and analyze 5359 private investments in public equity (PIPEs) and seasoned equity offerings (SEOs) during 1997 to 2006. Using a p-score matched sample analysis we document that firms that are more likely to use PIPEs tend to be higher levered, unprofitable, less liquid, more opaque and cash restricted companies, compared to SEO issuers. Our long run performance analysis suggests that PIPE issuers underperform less severely than SEO firms one and two years after the offering, but are more likely to become takeover targets. The results from the empirical analysis are consistent with the information acquisition hypothesis for PIPE issues and the signaling hypothesis for SEO issues.