Stephen P. Ferris

Agency conflict and corporate strategy : The effect of divestment on corporate value

Among the various stakeholders of a firm, senior managers are the most likely targets for private and public political pressures. Other stakeholder groups are less visible and may be perceived as less influential in corporate strategy formulation and implementation. In some situations, consequently, senior executives may adopt corporate strategies in response to political pressures even if these strategies may be costly to shareholders. In this study, a special case is examined: the effect of divestment of South African business units on firm value. Using data from 1984 through 1990, we examine the impact that announcements of divestments have upon the stock return behavior of publicly traded firms. Our results indicate that significant and negative excess returns accrue to shares of companies announcing divestments of South African operations. These results are supportive of the premise that noneconomic pressures may influence managerial strategies rather than value‐enhancement goals.

Competitiveness through Management of Diversity: Effects on Stock Price Valuation

This studys premise is that firms that can lower their costs and enhance their differentiation through the effective management of their human resources have a competitive advantage. Using data fr...

IMPACT OF CORPORATE INSIDER, BLOCKHOLDER, AND INSTITUTIONAL EQUITY OWNERSHIP ON FIRM RISK TAKING

The nature of a firms risk-taking behavior can significantly affect corporate performance. In an agency context, we examined the influence of equity ownership structure upon corporate risk taking....

The costs (and benefits?) of diversified business groups: The case of Korean chaebols

Abstract We examine Korean chaebols to determine the costs and benefits associated with the operation of a diversified business group. We find that chaebol-affiliated firms suffer a value loss relative to non-affiliated firms. We observe that this value loss holds even after controlling for the relatedness of the diversification present within the chaebol. To identify the causes of this value loss, we obtain evidence suggesting that chaebol firms: (1) pursue profit stability rather than profit maximization, (2) over-invest in low performing industries, and (3) cross-subsidize the weaker members of their group. We do find however that chaebol firms possess greater debt capacity and consequently enjoy lower tax burdens. Nevertheless, because chaebols suffer an overall loss in value, we conclude that the costs associated with chaebol membership exceed its benefits.

CEO Overconfidence and International Merger and Acquisition Activity

This study examines the role that chief executive officer (CEO) overconfidence plays in an explanation of international mergers and acquisitions during the period 2000–2006. Using a sample of CEOs of Fortune Global 500 firms over our sample period, we find that CEO overconfidence is related to a number of critical aspects of international merger activity. Overconfidence helps to explain the number of offers made by a CEO, the frequencies of nondiversifying and diversifying acquisitions, and the use of cash to finance a merger deal. Although overconfidence is an international phenomenon, it is most extensively observed in individuals heading firms headquartered in Christian countries that encourage individualism while de-emphasizing long-term orientation in their national cultures.

Derivative lawsuits as a corporate governance mechanism: Empirical evidence on board changes surrounding filings

Legal rights of investors are recognized as an essential component of corporate governance. We assess the efficacy of these rights by examining board changes surrounding the filings of shareholder derivative lawsuits. We find that the incidence of derivative lawsuits is higher for firms with a greater likelihood of agency conflicts. We also find that derivative lawsuits are associated with significant improvements in the boards of directors. In particular, the proportion of outside representation on the board of directors increases. There is also some evidence that other board characteristics change favorably. These findings suggest that shareholder derivative lawsuits are not frivolous as is often claimed, but rather that they can serve as an effective corporate governance mechanism.

The information effects of analyst activity at the announcement of new equity issues

Myers and Majluf (1984) argue that informational asymmetry between managers and investors can explain the negative stock returns around the announcement of new equity. Using analyst following and consensus as proxies for information asymmetry, we observe that announcement period returns are significantly more negative for firms followed by fewer analysts and whose forecasts exhibit less consensus. Our findings hold after controlling for firm size and growth opportunities. Finally, we find evidence suggesting that analyst activity also influences firms’ long-term performance. We conclude that the information role of security analysts partially explains the negative stock returns surrounding the announcement of new equity.

God Save the Queen and Her Dividends: Corporate Payouts in the United Kingdom

We examine whether the decline in the number of dividend payers is purely a U.S. phenomenon or is part of a global trend. Focusing on the United Kingdom, a capital market comparable in maturity and sophistication to that of the United States, we find that the number of U.K. firms paying dividends declines from 75.9% to 54.5%. After controlling for firm size and profitability, we find a declining propensity to pay dividends over the 1998–2002 subperiod. We conclude that a shift in catering incentives appears most likely explain these recent changes in U.K. payout policies.

The tax-loss selling hypothesis, market liquidity, and price pressure around the turn-of-the-year

Abstract In this paper, we use intra-day data for all stocks listed on the ISSM and provide new and direct evidence consistent with the tax-loss selling hypothesis. We find that (a) there is abnormal selling pressure prior to the year-end for stocks that have experienced large capital losses in the current and prior years (b) investors delay realizing capital gain by postponing the sale of capital gain stocks until after the new year (c) there is a significant decrease in the average trade size for stocks with large capital losses before the year-end and for stocks with capital gains in the new year, which suggests that individuals, rather than institutional investors, are the major sellers around the year-end (d) the tax-loss selling hypothesis, and not firm size or share price, is the fundamental explanation for abnormal January returns. Further, small or low share priced firms with capital gains do not experience abnormal returns in January. However, conditional on capital losses, small or low share priced firms magnify the turn-of-the-year effect (e) On average, the increase in selling activity adversely affects market liquidity by increasing bid-ask spreads and reducing depths. (f) The tax-loss selling pressure not only causes the price to be at the bid at the year-end, it also temporarily depresses the equilibrium price indicating the short run demand curve is not perfectly elastic (g) the year-end buying activity suggests that large investors buy capital loss stocks prior to the year-end to take advantage of the temporarily depressed price and capital gain stocks after the new year to reinvest the proceeds of the tax-loss selling.

Agency influences on risk reduction and operating performance: An empirical investigation among strategic groups

Abstract The relationships between risk and performance were tested employing within and between analyses at the level of strategic groups in three different industries. As hypothesized, systematic risk did not exhibit a consistent relationship with performance. By contrast, all of the total correlations, the between-group correlations, and the within-group correlations of total risk with performance were in the hypothesized negative direction. These findings suggest that when risk-averse managers reduce total risk, the firms carnings performance is enhanced. The hypothesized differences between strategic groups in total risk were evident primarily in the computer and pharmaceutical industries. Performance also differed across strategic groups in these two industries, as well as among airlines. Contrary to expectations, systematic risk also differed across strategic groups in all three industries. These ANOVA results indicate that differences in strategic profiles between strategic groups engender differences in total risk, systematic risk, and performance .