Willem Schramade

The price of power: Valuing the controlling position of owner-managers in French IPO firms

Abstract Going public often creates an agency conflict between the owner–manager and minority shareholders. This problem is especially severe in countries with poor legal investor protection, such as France. We examine the controlling position of owner–managers in French initial public offering (IPO) firms. We find that investors anticipate the increased agency conflict associated with a lock on control and lower firm value when the owner–manager is more powerful. Shareholder agreements in which the owner–manager agrees to share control with other pre-IPO owners enhance firm value. We also report that higher cash flow ownership by the owner–manager is positively related to firm value when he is not in full control. Finally, we document that the large (non-pecuniary) private benefits of control in France may motivate owner–managers to retain control after the IPO.

Does Public Debt Discipline Managers and Controlling Owners

This chapter investigates whether shareholders of firms that enter bond markets for the first time benefit from a reduction in free cash flows or suffer from controlling owners keeping a lock on control. We analyze an international sample of 225 bond initial public offerings (IPOs) from 37 countries. We find that announcement returns are higher for firms with higher free cash flows and lower for firms with controlling owners that have majority control. These effects depend on the level of legal shareholder protection. We find that the disciplinary power of public debt is more important in countries with strong shareholder protection. In countries with weak shareholder protection, the negative lock on control effect dominates.

8 – Reverse mergers in the United Kingdom: Listed targets and private acquirers1

Publisher Summary This chapter investigates reverse mergers in the United Kingdom during the years 1990–2001. Reverse mergers provide an alternative way of going public. In reverse mergers a private company de facto acquires a public target company whereas, de iure, it is the public company that acquires the private company. This way the private company, the acquirer in economic terms, can obtain a stock market listing for its shares via the “backdoor” without the costs and time it takes to conduct an IPO. Whereas an IPO requires a careful procedure and intense regulatory scrutiny, a reverse merger is faster and offers greater flexibility. Additionally, the firms do not have to pay high fees to investment banks to assist them in conducting the IPO. Moreover, an IPO can be very difficult in poor stock market conditions. The study finds that reverse mergers are value-creating events for the shareholders of the target public company. The announcement return is higher if the target company experiences poor performance in the year prior to the reverse merger and if the private company is large relative to the public company. Abnormal returns are higher when the target firm is more in need of a takeover and when the takeover is more likely to succeed. The long-run stock returns and the operating performance of reverse-merger firms are also similar to those of their matched IPO counterparts.

Investing in the UN Sustainable Development Goals

The UN’s Sustainable Development Goals (SDGs) are a set of ambitious targets for making the world a better place. As the SDGs offer a path to value creation for both society and shareholders, they present both risks and opportunities for corporates and investors – and they’d better be prepared for the SDGs. This means, first of all, exploring what the SDGs are: second, finding out how they are exposed and what risks and opportunities the SDGs pose; third, setting their own specific goals, which among others means integrating them into incentives with strong KPIs; fourth, measuring and reporting on the SDGs. For investors, it is important to recognize that not all SDGs are equally investable and that reporting on key SDG performance indicators is still too scarce to rely on for investment purposes. To overcome this problem, we developed a tagging approach that allows us to assess our SDG exposure and invest in the SDGs now. As better data becomes available, we continue to develop and use better impact metrics. Corporates are starting to explore the SDGs. They are increasingly referring to the SDGs in their communication, but targets and KPIs on the SDGs are rare. Such KPIs are needed though, as companies will have to report on their progress on achieving their goals. Ultimately, the SDGs will be integrated into their strategy and investment decisions. This article argues what KPIs on the SDGs ideally look like. It also shows how some pioneering corporates are dealing with them.