Nilanjan Basu

Distance, information asymmetry, and mergers: evidence from Canadian firms

Purpose - The purpose of this paper is to examine the impact of the distance between the acquiror and the target on merger outcomes. Design/methodology/approach - The authors use the distance between acquiror and target headquarters for a sample of 134 Canadian mergers to proxy for the impact of information asymmetry due to distance. They use an ordinary least squares regression to examine the impact of this distance on the abnormal returns earned by the acquiror and the operating performance of the acquiror. They also use a logistic regression to test for the impact of distance on the choice of the medium of exchange. Findings - The results suggest that a larger distance between the acquiror and the target is related to lower abnormal returns for the acquiror, poorer post-merger operating performance, as well as to a greater use of stock as the medium of exchange. The results are robust to several alternate specifications. Research limitations/implications - The findings of this paper extend existing research that suggests that distance affects investment decisions. Moreover, by analyzing the choice of the medium of exchange, this paper provides evidence that indicates that the distance matters due to its impact on information. As such, the paper suggests a potential empirical approach to measuring information asymmetry. Future research could help us better understand the role of distance in various other aspects of corporate decision making. Originality/value - This paper, by analyzing a sample of Canadian firms, provides an out-of-sample test for prior research that has focused almost exclusively on US firms. Moreover, by looking at the choice of the medium of exchange, it provides direct evidence that distance affects corporate decision making.

Sarbanes‐Oxley, governance, performance, and valuation

Purpose - The purpose of this paper is to examine the effect of the passage of the Sarbanes-Oxley Act (SOX) on a number of governance and governance-related characteristics, such as board structure and committee composition, as well as the effect of those changes (if any) on both accounting performance and company value. Design/methodology/approach - The paper derives its results using a series of statistical analyses performed on the universe of firms comprising the S&P 500 index. To better gauge the effect of governance changes on firm performance, it uses four different performance measures. Findings - The paper finds that as a direct consequence of the passage of SOX, the fraction of outsiders on corporate boards and all major board committees has gone up significantly. In addition, total chief executive officer compensation relative to sales as well as the amount of illegal insider trading (measured by a proxy based on the abnormal profits derived from insider trades) have declined. Finally, board size has declined marginally. None of these changes, however, is associated with any improvement in corporate performance or value. Originality/value - The paper contributes to the brewing debate on the usefulness of SOX regulations. It examines several performance and governance-related variables that have been previously overlooked. In addition, unlike most previous studies that look at the effect of SOX on governance, or valuation, the paper controls for the incremental effect of stock exchange regulations.

Founder as Steward or Agent? A Study of Founder Ownership and Firm Value:

This study addresses the relationship between founder ownership and firm value in young and entrepreneurial businesses. We argue that a stewardship effect prevails when founders have low or high levels of ownership while an agency effect prevails at intermediate levels. Using a dataset of 1,269 firms with 11,645 firm-year observations, we find support for our hypothesis that there is a convex relationship between founder ownership and firm value. The agency effect at intermediate founder ownership is consistent with evidence indicating that these firms display lower leverage, greater unrelated diversification, and higher disproportionate board representation.

Ownership Structure and Power: Evidence from US Corporations

Abstract We examine the influence of ownership structure on a blockholder’s power in a firm. We first describe the presence and ownership stakes of blockholders in a comprehensive sample of US firms. We develop a measure of the influence of the ownership structure on a blockholder’s power and show that an average blockholder loses 12% of her potential power due to the presence and size of the ownership stakes of other blockholders. Further, the influence of ownership structure varies systematically with a blockholder’s rank and identity, with the second and nonfamily manager blockholders experiencing the largest loss of power.

The structure of equity ownership: a survey of the evidence

Purpose - – The purpose of this paper is to review recent research on the structure of equity ownership and its impact on firm value. In doing so, the paper outlines the main issues, surveys the more recent work, and highlights the most promising developments on this topic. Design/methodology/approach - – The paper is a survey – as such there is no relevant research design. Findings - – The paper commences from multiple surveys done a decade ago that find that the evidence on this topic is inconclusive. Since then, researchers have developed several promising lines of inquiry. These approaches – specifically the new focus on the identity of the blockholders, multiple blockholder interactions, as well as the use of structural modeling, and the use of changes in insider ownership – hold some promise of being able to provide more definitive answers. Research limitations/implications - – The paper suggests that current researchers focus on newer approaches to analyzing the structure of equity ownership. Specifically, for research on blockholder ownership, the identity of blockholders as well as the interaction between blockholders are promising approaches to this topic. For research on insider ownership, structural models that have become recently popular as well as an emphasis on changes rather than levels of insider ownership are promising avenues of inquiry. Originality/value - – The paper summarizes the state of research on the structure of equity ownership and in doing so provides a quick introduction to a researcher new to this topic. In addition, the paper highlights the most promising areas of inquiry on this topic.