http://repub.eur.nl/res/concept/jel-G30/ Recent publications classified by JEL Code G30 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/31636/ 2012-01-01T00:00:00Z Abstract. Managerial hubris can lead to overpayment for acquisitions for two non-mutually exclusive reasons: (i) the target’s stand-alone value under the bidder’s control is overestimated or (ii) synergies from the combined entity are overestimated. We provide a unique test of the first source of overpayment by isolating that portion of the target’s ex-ante value that is attributable to a founder CEO, and relating this to bidder abnormal returns. We document evidence of a significant founder CEO value effect in target firms and show that this founder effect is negatively correlated with bidder gains. This finding is not due to founder CEOs using their bargaining power to appropriate a larger share of the total acquisition gains. Rather, our findings are consistent with hubris-infected bidders underestimating the value of the founder’s firm-specific human capital (which is likely to undergo a significant decline after the acquisition), and consequently, overestimating the value of the target as a stand-alone firm under the bidder’s control. Nagarajan, N.J. Schlingemann, F.P. Poel, A.M. van der Yalin, M.F. http://repub.eur.nl/res/pub/25723/ 2011-07-01T00:00:00Z Using the upper echelons perspective together with corporate governance and strategic renewal literature, this paper investigates how top managers' corporate governance orientation influences a firm's strategic renewal trajectories over time. Through both a qualitative analysis (1907-2004) and a quantitative analysis (1959-2004), we investigate this under-researched question within the context of a large incumbent firm: Royal Dutch Shell plc. Our results indicate that top managers having an Anglo-Saxon corporate governance orientation are more likely to pursue exploitative and external-growth strategic renewal trajectories, while those having a Rhine corporate governance orientation are more likely to pursue exploratory and internal-growth strategic renewal trajectories. We also found a positive moderating effect of the proportion of shareholders from the Anglo-Saxon countries on exploitative and external-growth strategic renewal trajectories. Our findings indicate that top managers' corporate governance orientation can be an important antecedent of strategic renewal and of organizational ambidexterity, both of which influence corporate longevity. Kwee, Z. Bosch, F.A.J. van den Volberda, H.W. http://repub.eur.nl/res/pub/21081/ 2010-10-01T00:00:00Z Information on borrower quality is a fundamental issue in debt contracting, corporate and consumer finance, and financial intermediation. We investigate the link between account activity and information production on borrower risk. Based on a unique data set, we find that credit line usage, limit violations, and cash inflows exhibit abnormal patterns approximately 12 months before default events. Measures of account activity substantially improve default predictions and are especially helpful for monitoring small businesses and individuals. Furthermore, early warning indications result in higher loan spreads, and in a higher likelihood of limit reductions and complete write-offs. Our study shows that account activity provides a real-time window into the borrower's cash flows, thus explaining why banks have an advantage in providing certain types of debt financing. Norden, L. Weber, M. http://repub.eur.nl/res/pub/23438/ 2010-08-01T00:00:00Z Using a large firm-level dataset of 2920 IPOs from 21 countries we examine the impact of country-level institutional characteristics on the underpricing of IPOs. Through hierarchical linear modeling we are able to control for firm-specific and issue-specific characteristics and test whether country-specific institutional characteristics add explanatory power to explain the level of underpricing. Our results show that about 10% of the variation in the level of underpricing is between countries. The quality of a country’s legal framework, as measured by its level of investor protection, the overall quality of its legal system and its level of legal enforcement, reduces the level of underpricing significantly. Engelen, P-J. Essen, M. van http://repub.eur.nl/res/pub/16809/ 2009-08-24T00:00:00Z This paper investigates whether observed executive compensation contracts are designed to provide risk-taking incentives in addition to effort incentives. We develop a stylized principal-agent model that captures the interdependence between firm risk and managerial incentives. We calibrate the model to individual CEO data and show that it can explain observed compensation practice surprisingly well. In particular, it justifies large option holdings and high base salaries. Our analysis suggests that options should be issued in the money. If tax effects are taken into account, the model is consistent with the almost uniform use of at-the-money stock options. We conclude that the provision of risk-taking incentives is a major objective in executive compensation practice. Dittmann, I. Yu, K-C. http://repub.eur.nl/res/pub/10517/ 2007-09-11T00:00:00Z We analyze the importance of firm-specific and country-specific factors in the leverage choice of firms from 42 countries around the world. Our analysis yields two new results. First, we find that firm-specific determinants of leverage differ across countries, while prior studies implicitly assume equal impact of firm-specific factors. Second, although we concur with the conventional direct impact of country-specific factors on the capital structure of firms, we show that there is an indirect impact because country-specific factors also influence the roles of firm-specific determinants of leverage. Jong, A. de Kabir, R. Nguyen, T.T. http://repub.eur.nl/res/pub/11751/ 2007-01-01T00:00:00Z It is often assumed that bad corporate performance means a bad CEO. The task of a board of directors is then simple: dismiss the executive. If it fails to do so, the board is said to be indolent. We take a kinder approach to observed board behaviour and point to the problems even well-intended boards would encounter. They face the twin task of disciplining and screening executives. To perform these tasks directors do not have detailed information about executives’ behaviour, and only infrequently have information about the success or failure of initiated strategies, reorganizations, mergers etc. We analyse the nature of (implicit) retention contracts boards use to discipline and screen executives. Consistent with empirical observation, we …nd that executives may become overly active to show their credentials; that the link between bad performance and dismissal is weak; and that boards occasionally dismiss competent executives.It is often assumed that bad corporate performance means a bad CEO. The task of a board of directors is then simple: dismiss the executive. If it fails to do so, the board is said to be indolent. We take a kinder approach to observed board behaviour and point to the problems even well-intended boards would encounter. They face the twin task of disciplining and screening executives. To perform these tasks directors do not have detailed information about executives’ behaviour, and only infrequently have information about the success or failure of initiated strategies, reorganizations, mergers etc. We analyse the nature of (implicit) retention contracts boards use to discipline and screen executives. Consistent with empirical observation, we …nd that executives may become overly active to show their credentials; that the link between bad performance and dismissal is weak; and that boards occasionally dismiss competent executives. Visser, B. Dominguez Martinez, S. Swank, O.H. http://repub.eur.nl/res/pub/8992/ 2006-12-12T00:00:00Z Despite a vast literature on the capital structure of the firm there still is a big gap between theory and practice. Starting with the seminal work by Modigliani & Miller, much attention has been paid to the optimality of capital structure from the shareholders’ point of view. Over the last few decades studies have been produced on the effect of other stakeholders’ interests on capital structure. Well-known examples are the interests of customers who receive product or service guarantees from the company. Another area that has received considerable attention is the relation between managerial incentives and capital structure. Furthermore, the issue of corporate control and, related, the issue of corporate governance, receive a lion’s part of the more recent academic attention for capital structure decisions. From all these studies, one thing is clear: The capital structure decision (or rather, the management of the capital structure over time) has to deal with more issues than the maximization of the firm’s market value alone. In this paper, we give an overview of the different objectives and considerations that have been proposed in the literature. We show that capital structure decisions can be framed as multiple criteria decision problems which can then benefit from multiple criteria decision support tools that are widely available. Schauten, M.B.J. Spronk, J. http://repub.eur.nl/res/pub/8046/ 2006-10-06T00:00:00Z Abe de Jong (1970) is Professor in Corporate Finance and Corporate Governance at RSM Erasmus University. He obtained a PhD in finance at Tilburg University (1999). His research and teaching interests are in the area of empirical corporate finance and include capital structure choice, dividend policy, risk management, corporate investment and divestment policies, and corporate governance. In this inaugural address he discusses recent developments in the area of corporate finance, and in particular behavioral aspects of strategic and financial decision-making. The insights from behavioral finance are confronted with the effectiveness of corporate governance mechanisms. Jong, A. de http://repub.eur.nl/res/pub/7834/ 2006-06-19T00:00:00Z Boards of directors face the twin task of disciplining and screening executives. To perform these tasks directors do not have detailed information about executives' behaviour, and only infrequently have information about the success or failure of initiated strategies, reorganizations, mergers etc. We analyse the nature of (implicit) retention contracts boards use to discipline and screen executives. Consistent with empirical observation, we find that executives may become overly active to show their credentials; that the link between bad performance and dismissal is weak; and that boards occasionally dismiss competent executives. Dominguez Martinez, S. Swank, O.H. Visser, B. http://repub.eur.nl/res/pub/6621/ 2005-01-01T00:00:00Z This paper uses a unified treatment of real options and game theory to examine value appropriation in takeovers within a competitive environment of imperfect information. The integrated model considers a potential target as a shared real option on a bundle of resources. Competing potential buyers may sequentially perform due diligence and incur costs (option premium) to become informed about their firm-specific target value (underlying value) before making a bid (exercise price). The first player’s bid provides a signal on its own and rivals’ target value, thereby affecting potential bidders’ option value. The level of information costs and the option value, affected by heterogeneity between bidders (correlation), their expected target value, and uncertainty, determine value appropriation in acquisitions. Smit, J.T.J. Berg, W.A. van den Maeseneire, W. de http://repub.eur.nl/res/pub/321/ 2003-04-29T00:00:00Z Most financial-economic decisions are made consciously, with a clear and constant drive to ???good???, ???better??? or even ???optimal??? decisions. Nevertheless, many decisions in practice do not earn these qualifications, despite the availability of financial economic theory, decision sciences and ample resources. We plea for the development of a multidimensional framework to support financial economic decision processes. Our aim is to achieve a better integration of available theory and decision technologies. We sketch (a) what the framework should look like, (b) what elements of the framework already exist and which not, and (c) how the MCDA community can co-operate in its development. Hallerbach, W.G.P.M. Spronk, J. http://repub.eur.nl/res/pub/6797/ 2002-08-09T00:00:00Z One of the debates in the capital budgeting model selection is between the free cash flow and DCF methods. In this paper an attempt is made to compare SVA against NPV model based on Monte Carlo simulations. Accordingly, NPV is found less sensitive to value driver variations and has got higher forecast errors as compared to SVA model. Akalu, M.M. Turner, J.R. http://repub.eur.nl/res/pub/6798/ 2002-07-30T00:00:00Z The survey findings indicate the existence of gap between theory and practice of capital budgeting. Standard appraisal methods have shown a wider project value discrepancy, which is beyond and above the contingency limit. In addition, the research has found the growing trend in the use of value management models. The presence of correlation between the frequency of monitoring and project value discrepancy, and the absence of uniformity in the use of evaluation methods throughout the life span of a project are among the results of the study. Akalu, M.M. http://repub.eur.nl/res/pub/343/ 2002-06-21T00:00:00Z Rede, in verkorte vorm uitgesproken bij de aanvaarding van het ambt van hoogleraar Ondernemingsfinanciering aan de Faculteit der Bedrijfskunde en de Faculteit der Economische Wetenschappen van de Erasmus Universiteit Rotterdam op vrijdag 21 juni 2002 Verbeek, M.J.C.M. http://repub.eur.nl/res/pub/90/ 2001-05-18T00:00:00Z We consider the issues of noise-to-signal estimation, finite sample performance and hypothesis testing for the nonparametric efficiency estimation technique proposed in Cherchye, L., T. Kuosmanen and G. T. Post (2001) 'Nonparametric efficiency estimation in stochastic environments', forthcoming in Operations Research. In addition, we apply the technique for analyzing European banks. Cherchye, L. Post, G.T. http://repub.eur.nl/res/pub/72/ 2001-02-12T00:00:00Z This paper develops a novel statistic for firm efficiency called efficiency depth that allows for statistical inference in case of errors-in-variables. We derive statistical tests that require minimal statistical assumptions; neither the sample distribution nor the noise level is required. An empirical illustration for European banks illustrates that - despite the minimal assumptions- the tests can have substantial discriminating power in practical applications. Kuosmanen, T. Post, G.T.