Ronald C. Lease

Ownership structure and voting on antitakeover amendments

Abstract Theory suggests that shareholders who own blocks of stock have a stronger incentive to invest in voting on corporate issues than nonblockholders. Our evidence indicates that institutional investors and other blockholders vote more actively on antitakeover amendments than nonblockholders, and opposition by institutions is greater when the proposal appears to harm shareholders. Our evidence suggests that institutions that are less subject to management influence, such as mutual funds, foundations, and public-employee pension funds, are more likely to oppose management than banks, insurance companies, and trusts, which frequently derive benefits from lines of business under management control.

THE MARKET VALUE OF CONTROL IN PUBLICLY-TRADED CORPORATIONS*

This paper tests the hypothesis that the future distribution of payoffs provided by a common stock depends upon whether ownership of the stock also conveys control over the firms activities. For 26 firms that had two classes of common stock outstanding, the class with superior voting rights traded at a premium relative to the other class. However, in four firms where the ownership structure of the firm also included a class of voting preferred stock, the class of common with superior voting rights traded at a significant discount relative to the class of common with inferior voting rights. The analysis suggests that there are both benefits and costs of corporate control.

The impact of long-range managerial compensation plans on shareholder wealth

Abstract This study examines the stock price reaction around the announcement of proposed changes in long-term managerial compensation packages. The evidence indicates that on average these plans are met with positive market reactions, i.e., shareholder wealth increases. Further, we are unable to differentiate the market reaction to various types of long-range compensation schemes. This result is consistent with the notion that firms with different characteristics will resolve their managerial compensation requirements differently. Thus no particular compensation package necessarily dominates all others.

The Market Value of Differential Voting Rights in Closely Held Corporations

Recent advances in the theory of the firm suggest an important role for the market for corporate control. Along with competition in the managerial labor market, various monitoring and bonding mechanisms, and managerial compensation schemes, competition for the right to determine or influence investment and financing decisions can play a role in disciplining a firms managers or decision makers. Most notably, Manne (1965) and Fama (1978) view the market for corporate control as facilitating the allocation of corporate assets to their highest valued use. That is, tender offers, merger bids, and proxy contests enable outsiders to obtain control and capture gains from implementing an improved set of investment and financing decisions. Consequently, the theory of the corporation implies that the property rights associated with corporate control are valuable. Several previous studies have provided direct or indirect evidence on the value of control. These include Bradley (1980), Meeker and Joy (1980), Bradley, Desai, and Kim (1983), Dodd and Warner

An empirical analysis of prepackaged bankruptcies

Abstract We provide comprehensive data on the attributes and outcomes of the restructuring process for a sample of 49 financially distressed firms that restructured by means a prepackaged bankruptcy. Our findings complement previous research on out-of-court restructurings and traditional Chapter 11 filings. By most measures, including the time spent in reorganization, the direct fees as a percent of pre-distress assets, the recovery rates by creditors, and the incidence of violation of absolute priority of claimholders, we find that prepacks lie between out-of-court restructurings and traditional Chapter 11 bankruptcies.

Stock Exchange Listings and Securities Returns

The broad import of the evidence is that the application and qualification by a firm for listing on one of the two major American securities exchanges did, at least during the years encompassed by our investigation, constitute an event with which were associated abnormal positive investment returns on the shares involved. Even though a portion of those returns seem subsequently to have been surrendered, the initial net effect from application through listing date was quite substantial, and the later correction thereto was much more modest. The average combined impact visible in Table 3 during the six-month period beginning with the listing application, for example, was a net positive annualized return approximately 17 percent above that enjoyed concurrently by the general run of comparable-systematic-risk securities in the market. The explicit consideration of such risk distinguishes the present investigation from earlier studies in the area [7] [8] [10] [12] [13] [18].On balance, then, it appears not unreasonable to conclude that listing did indeed “have value†for the companies examined. While one could argue that it was, intrinsically, the corporate developments (and the dissemination of the news thereof) which led to listing that were the real sources of value, the observed concentration of excess returns in the close proximity of the various application and listing dates would suggest that those actions provided useful market signals which did, in themselves, have a detectable favorable payoff—perhaps if only by way of accelerating the investment communitys appreciation of the improvement in the applying firms underlying operating circumstances. We interpret the evidence as supportive of that hypothesis.The implications of the same evidence for questions of market efficiency, however, are somewhat more ambiguous. There would seem, as noted, to be in the data indications of certain possible information-response time lags that are not totally consistent with efficiency; and there is an apparent systematic initial price overreaction to application-cum-listing which is later remedied. Transactions costs, on the other hand, have not been considered here, and these clearly would impede the adjustment process by raising the threshold for investor action. Despite some cause for suspicion, therefore, a definitive judgment about efficiency must await further investigation.

Corporate voting: Evidence from charter amendment proposals

Abstract Some argue that managers effectively control corporate voting: hence the process is meaningless. Others contend that shareholder voting motivates managers to maximize firm value. We provide evidence on this debate by analyzing the results from a large sample of management-sponsored anti-takeover amendments. Our results do not support the extreme form of either hypothesis. The evidence suggests that shareholder voting is important and indicates the circumstances where voting is most likely to constrain managers. Our results also have implications for the use of voting in political and other non-corporate contexts.

INCENTIVE EFFECTS OF STOCK PURCHASE PLANS

Abstract Financial economists are interested in whether alternative compensation plans are adopted primarily for tax, incentive or signaling reasons. As most compensation plans have tax implications, examining for other effects is difficult. In this paper we examine the stock market reaction to employee stock purchase plans which are ‘non-tax advantageous’ and adopted for incentive/signaling reasons. The results suggest that (1) equity-based compensation schemes have a positive effect on shareholder wealth for reasons other than tax reduction, (2) a motive for adopting these plans is to align managerial and shareholder interests, and (3) equity ownership motivates key executives more than subordinate employees.

The determinants of yields on financial leasing contracts

Abstract This study tests hypotheses about the valuation of leasing contracts. We examine the determinants of the yields of a relatively large, reasonably heterogeneous, and nationally representative sample of financial leases. We find lease yields to be significantly related to treasury bond yields and our proxies for the systematic risk of the leased assets residual value and the transaction and information costs associated with the lease. There is also some evidence of a relationship between lease yields and the default-risk of the lessee.

Investment Performance and Investor Behavior

The operation and characteristics of the American securities markets have long been major preoccupations of financial research, especially during the last decade. Particular attention has been devoted to the question of whether there exist investment strategies, or investing entities, capable of producing consistently superior investment performance. The general consensus to date is that few, if any, such success stories are observable. Examinations of the value of professional investment research and counsel ([7] [8] [9] [24]), of the payoff from technical trading rules ([11] [13] [18] [20] [26] [34]), and of the investment results of institutional money management ([15] [29] [25] [28]) have, in almost every instance, provided little indication of performance better than that attainable from a simple passive strategy of buying and holding a randomly selected, well-diversified portfolio of securities, after appropriate adjustments for portfolio risk levels are taken into account. The intensive competition in, and rapid information-digesting properties of, the capital market environment have been cited as explanations ([2] [5] [12]).