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Risk dynamics, growth options, and financial leverage
Title
Risk dynamics, growth options, and financial leverage: evidence from mergers and acquisitions.
Creator
Coy, Jeffrey M., College of Business, Department of Finance
Abstract/Description
In essay I, I empirically examine theoretical inferences of real options models regarding the effects of business risk on the pricing of firms engaged in corporate control transactions. This study shows that the risk differential between the merging firms has a significant effect on the risk dynamic of bidding firms around control transactions and that the at-announcement risk dynamic is negatively related to that in the preannouncement period. In addition, the relative size of the target,...
Show moreIn essay I, I empirically examine theoretical inferences of real options models regarding the effects of business risk on the pricing of firms engaged in corporate control transactions. This study shows that the risk differential between the merging firms has a significant effect on the risk dynamic of bidding firms around control transactions and that the at-announcement risk dynamic is negatively related to that in the preannouncement period. In addition, the relative size of the target, the volatility of bidder cash flows, and the relative growth rate of the bidder have significant explanatory power in the cross-section of announcement returns to bidding firm shareholders as does the change in the cost of capital resulting from the transaction. Essay II provides an empirical analysis of a second set of real options models that theoretically examine the dynamics of financial risk around control transactions as well as the link between financial leverage and the probability of acquisition. In addition, I present a comparison of the financial risk dynamics of firms that choose an external growth strategy, through acquisition, and those that pursue an internal growth strategy through capital expenditures that are unrelated to acquisition.
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Date Issued
2013
PURL
http://purl.flvc.org/fcla/dt/3362323
Subject Headings
Consolidation and merger of corporations, Financial services industry, Mathematical models, Corporations, Finance, Financial risk management
Format
Document (PDF)
PCAOB inspections and audit quality evidence from cross-listed securities
Title
PCAOB inspections and audit quality evidence from cross-listed securities.
Creator
Stewart, Errol G.G., College of Business, School of Accounting
Abstract/Description
In the period leading up to the early 2000s there were a series of large company failures attributed at least in part to audit failures. Consequently, the Sarbanes Oxley Act (SOX) was promulgated in July 2002 to restore confidence in public company financial reporting and the work of auditors. The Public Company Accounting Oversight Board (PCAOB) was established by SOX and appointed as the regulator of the accounting firms that audit the financial statements of public companies. The PCAOB is...
Show moreIn the period leading up to the early 2000s there were a series of large company failures attributed at least in part to audit failures. Consequently, the Sarbanes Oxley Act (SOX) was promulgated in July 2002 to restore confidence in public company financial reporting and the work of auditors. The Public Company Accounting Oversight Board (PCAOB) was established by SOX and appointed as the regulator of the accounting firms that audit the financial statements of public companies. The PCAOB is required to routinely inspect the operations of these accounting firms in an effort to satisfy its mandate to bring about an improvement in the audit quality of these companies. These inspections extend to the non-US auditors of companies that are cross-listed in the US. Despite various mainly US studies on inspections, there is limited evidence that the inspections have resulted in improved audit quality. ... I examine companies whose securities are cross-listed in the US in the periods before and after inspection in order to provide evidence on the benefits of inspections. I find some evidence that inspections improve the audit quality of companies that are cross-listed in the US. This suggests the audit quality of companies from countries that do not permit inspections may be positively affected should inspections be permitted.
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Date Issued
2012
PURL
http://purl.flvc.org/FAU/3356016
Subject Headings
Auditing, Standards, Financial services industry, Management, Corporate governance, Law and legislation, Corporations, Auditing, Standards
Format
Document (PDF)
impact of director monitoring role on ownership
Title
The impact of director monitoring role on ownership: the anti-agency theory.
Creator
Incardona, John., College of Business, Accounting
Abstract/Description
I investigate the association between independent directors' monitoring roles as distinguished by whether they reside on the audit committee (ACs) or not (NACs) and their respective ownership and whether Section 301 or a proxy for alternative independent monitoring (the percentage of institutional ownership) affects this relation. Specifically, I examine whether the objectivity required of serving as an AC (consistent with their audit function role) or alignment with investors (consistent...
Show moreI investigate the association between independent directors' monitoring roles as distinguished by whether they reside on the audit committee (ACs) or not (NACs) and their respective ownership and whether Section 301 or a proxy for alternative independent monitoring (the percentage of institutional ownership) affects this relation. Specifically, I examine whether the objectivity required of serving as an AC (consistent with their audit function role) or alignment with investors (consistent with agency theory) dominates in determining independent directors' level of share ownership. Using generalized estimations of equations I provide evidence that ACs hold less ownership than NACs that suggests differences with respect to independence in appearance/ alignment with shareholder interests not previously documented amongst independent directors. I also find evidence that Section 301 may contribute to this differential ownership while the presence of institutional ownership moderates this relationship.
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Date Issued
2010
PURL
http://purl.flvc.org/FAU/2683129
Subject Headings
Industrial management, Corporations, Management, Directors of corporations, Legal status, laws, etc
Format
Document (PDF)
Growth options in mergers
Title
Growth options in mergers.
Creator
Davis, Sean M., College of Business, Department of Finance
Abstract/Description
This dissertation is a growth options analysis of high tech mergers. I analyze the impact growth options have on the likelihood of a high tech firm being acquired, the premiums paid for these acquisitions, and the synergies that result from these mergers. I examine how proxies for growth options interact with those for the resources needed to fund growth. A significant part of my analysis involves developing and examining a new growth options proxy, Gamma, the return on investment a firm...
Show moreThis dissertation is a growth options analysis of high tech mergers. I analyze the impact growth options have on the likelihood of a high tech firm being acquired, the premiums paid for these acquisitions, and the synergies that result from these mergers. I examine how proxies for growth options interact with those for the resources needed to fund growth. A significant part of my analysis involves developing and examining a new growth options proxy, Gamma, the return on investment a firm realizes in growth options value from its R&D expenditures. I find that firms that are better than their peers in converting R&D into growth options value, i.e. they have high Gamma, are more likely to be targeted for acquisition than low-Gamma firms. The premiums paid are impacted most by the characteristics of the deal, primarily when deals are competitive, and GDP growth. The acquirer's Gamma, however, is very significant in predicting premiums. Acquiring firms with high Gamma pay significantly lower premiums. The synergies that result from a merger are measured in short and long run returns, and most mergers result in value destruction to the combined firm. In the fewer than 20% of the mergers that resulted in positive long run abnormal returns, the premium paid and whether the deal was competitive significantly reduced the returns. However the two characteristics that significantly increased returns were the acquirer's Gamma and if the acquirer and target had complementary characteristics for growth options levels and free cash flow.
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Date Issued
2011
PURL
http://purl.flvc.org/FAU/3357425
Subject Headings
Consolidation and merger of corporations, Corporations, Finance, Conglomerate corporations
Format
Document (PDF)
ESSAYS ON MANAGERIAL OPPORTUNISM, PENSION DE-RISKING, AND CORPORATE INVESTMENT POLICIES
Title
ESSAYS ON MANAGERIAL OPPORTUNISM, PENSION DE-RISKING, AND CORPORATE INVESTMENT POLICIES.
Creator
Silverstein, Brian, Pennathur, Anita K., Javakhadze, David, Florida Atlantic University, Department of Finance, College of Business
Abstract/Description
In the first essay, I examine how managerial opportunism affects corporate investment efficiency and, ultimately, firm performance. Prior research establishes corporate investment efficiency as a function of the firm’s information environment and internal governance. To measure managerial opportunism, I use an ex-ante firm level measure of managerial opportunism based on insider trading patterns and test its effects on investment efficiency and performance. Extant research associates...
Show moreIn the first essay, I examine how managerial opportunism affects corporate investment efficiency and, ultimately, firm performance. Prior research establishes corporate investment efficiency as a function of the firm’s information environment and internal governance. To measure managerial opportunism, I use an ex-ante firm level measure of managerial opportunism based on insider trading patterns and test its effects on investment efficiency and performance. Extant research associates opportunistic insider trading with opaque information environments about the firm and weak firm governance, making it an apropos proxy for opportunistic managerial behavior. Despite the clear establishment of opportunistic insider trading as an agency problem in the literature, it remains unanswered how the managerial insider trading decision’s economic irrationality might reflect a broader agency problem that affects firm investment policy and performance. I introduce competing hypotheses that managerial opportunism may positively associate with overinvestment through “empire building” and excessive risk taking at shareholders’ expense. On the contrary, manv agerial opportunism may lead to underinvestment through rent seeking behavior. My results show that managerial opportunism decreases firm investment efficiency and negatively affects accounting and stock performance. Further tests show that both the quality of the information environment and internal governance moderate the effects of managerial opportunism, providing a unique perspective on how insider trading policy and regulation can affect corporate investment policy.
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Date Issued
2021
PURL
http://purl.flvc.org/fau/fd/FA00013681
Subject Headings
Corporations, Pensions
Format
Document (PDF)
effect of income-increasing earnings management on analysts' responses
Title
The effect of income-increasing earnings management on analysts' responses.
Creator
Sankara, Jomo., College of Business, School of Accounting
Abstract/Description
As a consequence of financial analysts' joint role as information intermediaries and firm monitors, I investigate analysts' responses to opportunistic corporate earnings management as firm mispricing increases. While firms' management have capital markets and executive equity incentives to manage earnings, financial analysts have trading volume, investment banking, and management information incentives which result in analysts' optimism bias. However, prior research also finds that analysts...
Show moreAs a consequence of financial analysts' joint role as information intermediaries and firm monitors, I investigate analysts' responses to opportunistic corporate earnings management as firm mispricing increases. While firms' management have capital markets and executive equity incentives to manage earnings, financial analysts have trading volume, investment banking, and management information incentives which result in analysts' optimism bias. However, prior research also finds that analysts have reputational incentives, which motivate them to provide accurate and profitable outlooks. Using a generalized linear model (GLM), I estimate analysts' stock recommendation (price targets) responses for earnings management firms. I use the residual income model to compute fundamental value and I add proxies for earnings management to my analyst-responses models.... The main implications of my findings are that analysts use corporate earnings management and firm fundamental value in their stock recommendations (price targets) responses. In addition, my results provide evidence that, after controlling for earnings quality, analysts' stock recommendations (price targets) are consistent with strategies based on residual income models. These findings will be of interest to shareholders, regulators, and researchers as well as to finance and accounting practitioners.
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Date Issued
2012
PURL
http://purl.flvc.org/FAU/3355872
Subject Headings
Investment analysis, Portfolio management, Earnings per share, Accounting, Financial statements, Corporations, Finance
Format
Document (PDF)
Consequences of real earnings management and corporate governance
Title
Consequences of real earnings management and corporate governance: evidence from cash holdings.
Creator
Greiner, Adam J., College of Business, School of Accounting
Abstract/Description
I examine the impact of real earnings management (REM) and corporate governance on cash holdings. Extant research documents an increase in both cash holdings and REM activity in recent years and shows that agency conflicts influence both the levels and valuations of cash holdings. Motivated by agency problems of REM and Jensen's (1986) arguments concerning the free cash flow problem, I investigate whether opportunistic asset sales and reductions in discretionary expenditures are associated...
Show moreI examine the impact of real earnings management (REM) and corporate governance on cash holdings. Extant research documents an increase in both cash holdings and REM activity in recent years and shows that agency conflicts influence both the levels and valuations of cash holdings. Motivated by agency problems of REM and Jensen's (1986) arguments concerning the free cash flow problem, I investigate whether opportunistic asset sales and reductions in discretionary expenditures are associated with levels and valuations of cash holdings. Prior research also shows that strong corporate governance mitigates opportunistic earnings management behavior and enhances the valuation of cash holdings. Using empirical models from prior research, I document that REM is positively associated with cash holdings, investors discount cash holdings of high REM firms, and, among high REM firms, valuations of cash holdings of weak corporate governance firms are discounted significantly lower relative to those of strong corporate governance firms. My study unites two lines of research by incorporating agency problems concerning REM with levels and valuations of cash holdings.
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Date Issued
2013
PURL
http://purl.flvc.org/fcla/dt/3360788
Subject Headings
Econometrics, Corporate governance, Corporations, Corrupt practices, Corporations, Finance, Accounting, Industrial management
Format
Document (PDF)
Are the regulatory reforms working?
Title
Are the regulatory reforms working?: evidence from audit committee members' selection of auditors.
Creator
Looknanan-Brown, Veena., College of Business, School of Accounting
Abstract/Description
The Sarbanes-Oxley Act made audit committees directly responsible for the appointment, compensation, and supervision of companies' auditors. Limited research in the auditor selection process and PCAOB inspections suggest that managers, not audit committees, may still be selecting the auditors, and that inspection reports are not useful. This study addresses both of these areas. This paper considers two theories of governance, Agency Theory and Institution Theory, to analyze the audit...
Show moreThe Sarbanes-Oxley Act made audit committees directly responsible for the appointment, compensation, and supervision of companies' auditors. Limited research in the auditor selection process and PCAOB inspections suggest that managers, not audit committees, may still be selecting the auditors, and that inspection reports are not useful. This study addresses both of these areas. This paper considers two theories of governance, Agency Theory and Institution Theory, to analyze the audit committee members' auditor selection process. The study examines whether Audit Committee Members use two specific types of audit quality indicators, other than managers' recommendation, in evaluating auditors. In a setting where the manager recommends the auditor, the auditors' inspection results (favorable/unfavorable) and a prior manager/auditor affiliation (absent/present) are manipulated in a between-subject research design, using financially literate professionals as a proxy for audit committee members. The study finds that audit quality perception and auditor selection are jointly determined. Inspection results are positively associated with audit quality perception and auditor selection. The nature of a manager-auditor affiliation is directly associated with audit quality perception and inversely related to auditor selection. Further, controlling for perception, audit committee members are more likely to recommend auditors with unfavorable inspection results, if a prior affiliation with management is present than if an affiliation is absent. Overall, the results indicate that audit committee members are diligent in evaluating auditors, and PCAOB inspection results are useful. The results of this study contribute to the audit committee effectiveness and PCAOB literature.
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Date Issued
2011
PURL
http://purl.flvc.org/FAU/3318671
Subject Headings
Financial services industry, Management, Financial institutions, Law and legislation, Corporate governance, Law and legislation, Auditing, Standards, Corporations, Auditing, Standards
Format
Document (PDF)