The Chair of Corporate Finance strives to produce a broad range of finance-related research insights addressing topics of interest to academic researchers, practitioners, and policy makers. Current research topics include the analysis of corporate governance indices & firm value, gender issues in executive compensation, mergers & acquisitions, executive compensation, and the evolution of corporate ownership.
Covering topics on finance, corporate governance and more –
Returns on different types of investment in the global pharmaceutical industry.
Using stock market data of 10,550 publicly listed companies between 1987 and 2012, we study the marginal returns on investment for a large sample of pharmaceutical firms and compare them with returns on investment of firms from other industries. We also disentangle effects of different types of investments on total returns, namely, investment in advertising, research and development (R&D), fixed capital, and acquisitions. Our results suggest that the return of pharmaceutical companies on total investments is higher compared with a large number of nonpharmaceutical companies for the U.S. subsample in the first half of the observation period whereas no such difference can be found for non‐U.S. firms. We also find that the return–cost ratio has declined during our observation period, with the biggest drop for European firms. R&D investments generate the highest, and advertising investments the lowest returns.
Founding family effects on business group growth: Longitudinal evidence from Turkey (1925–2012).
Drawing from the family business perspective, this study provides insights into how the heterogeneity arising from founding family structures explains why particular business groups grow extensively, while others faced with similar external market conditions do not, and how the effects of founding family structure change over time. We test our hypotheses by using a unique, hand-collected, and extensive panel dataset which contains information of the full demographic history of founding families and all public and private companies founded/acquired or divested over the 1925–2012 period for 51 business groups in Turkey. Consistent with our hypotheses, our findings show that family size is a major positive determinant of the number of affiliated firms and the group scope. This effect is more strongly driven by sons compared to daughters. Business groups also grow more extensively when the first-born child is male …
Not All Clawbacks are the Same: Consequences of Strong versus Weak Clawback Provisions.
We develop a Clawback Strength Index and show that while some firms adopt unambiguous and strong clawback provisions, others adopt weak ones. We find that strong clawback adopters experience improvements in financial reporting quality, fewer CEO turnovers, and lower CEO pay. We advance two possible explanations: First, clawback strength may be primarily responsible for the improvements in reporting quality. Second, strong clawbacks may yield benefits because they are part of a broader reform package. While our findings on reporting quality and CEO turnover are consistent with both explanations, our results on CEO pay support only the broader reform explanation.
'She Is Mine': Determinants and Value Effects of Early Announcements in Takeovers.
Some bidders voluntarily announce a merger negotiation before the definitive agreement. We propose an “announce-to-signal” explanation to these early announcements: they allow bidders to signal to target shareholders high synergies so as to overcome negotiation frictions and improve success rates. Consistent with signaling, we show that negotiation frictions predict earlier announcements. Early announced transactions are associated with higher expected synergies, offer premium, completion rates, and public competition. Moreover, bidder announcement returns do not suggest overpayment and the existence of agency issues in these transactions. Taken collectively, our findings rule out alternative explanations such as managerial learning from investors and jump bidding.
Methods for Multicountry Studies of Corporate Governance: Evidence from the BRIKT Countries.
We discuss empirical challenges in multicountry studies of the effects of firm-level corporate governance on firm value, focusing on emerging markets. We assess the severe data, “construct validity,” and endogeneity issues in these studies, propose methods to respond to those issues, and apply those methods to a study of five major emerging markets -- Brazil, India, Korea, Russia, and Turkey. We develop unique time-series datasets on governance in each country. We address construct validity by building country-specific indices which reflect local norms and institutions. These similar-but-not-identical indices predict firm market value in each country, and when pooled across countries in firm fixed-effects (FE) and random-effects (RE) regressions. In contrast, a “common index” that uses the same elements in each country, has no predictive power in FE regressions. For the country-specific and pooled indices, FE and RE coefficients on governance are generally lower than in pooled OLS regressions, and coefficients with extensive covariates are generally lower than with limited covariates. These results confirm the value of using FE or RE with extensive covariates to reduce omitted variable bias. We develop lower bounds on our estimates which reflect potential omitted variable bias.