Thomas W. Bates

Breaking Up is Hard to Do? An Analysis of Termination Fee Provisions and Merger Outcomes

This paper provides large-sample evidence pertaining to the use of and wealth effects associated with provisions for termination fees in merger agreements between 1989 and 1998. The evidence suggests that target termination fee clauses are an efficient contracting device through which target managers compensate bidders for the costs associated with bid negotiation and the potential for information expropriation by third parties. While target fees truncate a normal bidding process, target shareholders gain from higher completion rates and greater negotiated takeover premiums in deals that include target termination fee clauses. Our findings regarding bidder fee provisions indicate that these clauses are used to lock-in a portion of target wealth gains in deals with higher negotiating costs and greater costs associated with bid failure. Compensation for bidder fee provisions appears to take the form of concomitant target fee provisions, and lower bid premiums.

Financial Goals and Debt Ratio Determinants: A Survey of Practice in Five Countries

Dr. Stonehill is Professor, Oregon State University and Courtesy Visiting Professor, North European Management Institute (NEMI), Oslo, Norway. Dr. Beekhuisen is Visiting Professor, INSEAD, and formerly Professor, The Netherlands School of Business, Breukelen. Dr. Wright is Associate Professor at McGill University and Visiting Professor, Institute for International Studies and Training, Japan. Dr. Remmers is Professor, INSEAD. Dr. Toy is Assistant Professor, Columbia University and Visiting Professor, NEMI. Dr. Pares is Assistant Professor, INSEAD-CEDEP. Dr. Egan is Professor of Marketing, Georgia State University. Dr. Bates is Professor and Director of the Center for World Business, California State University at San Francisco.

Why Has the Value of Cash Increased Over Time

We document a dramatic increase in the market valuation of cash holdings by U.S. firms from 1971 to 2010. The value of one dollar increases from

Bid Resistance by Takeover Targets: Managerial Bargaining or Bad Faith?

0.35 in the 1970s to

Is There Performance-Based Turnover on Corporate Boards?

0.97 in the 2000s, indicating that shareholders place much more value on cash in recent years. This increase in cash value is mainly driven by changes in firm characteristics of newly entering firms. However, changes in the characteristics of incumbent firms have also contributed partly to the increase in cash value. Improved monitoring environments, increased investment opportunities, and deleveraging can mostly explain the increase in cash value over time.

Why Do U.S. Firms Hold so Much More Cash than They Used to

This paper examines management’s motives for rejecting takeover bids and the associated shareholder wealth effects. We develop several measures of initial bid quality and find a significant negative correlation between contested offers and bid quality. The likelihood of higher follow-on offers decreases in bid quality and is greater when targets have classified boards and CEOs have significant personal wealth tied to the transaction. Moreover, CEOs who fail to close high quality offers experience a significant rate of forced turnover. Overall, the results support a price improvement motive for contested bids.

Board Classification and Managerial Entrenchment: Evidence from the Market for Corporate Control

We document an economically significant relation between director turnover and prior firm performance. This relation manifests in idiosyncratic stock returns consistent with relative performance evaluation and the monitoring of actions attributable to directors. The director turnover-performance sensitivity increases substantially throughout the 2000s, and varies with a number of governance characteristics, most notably with the presence of an active external blockholder. Directors who exit firms following poor performance are significantly less likely to obtain new directorships in the future. In sum, the threat of replacement for poor firm performance has become an increasingly significant incentive for the directors of public corporations.