Author(s):
Prof. Oliver Spalt, Elisabeth Kempf
Cooperation Partners:
Chair of Financial Markets and Financial Institutions
Description:
Low-quality securities class action lawsuits disproportionally target firms with valuable innovation output and lead to substantial shareholder-value losses. We establish this fact using data on class action lawsuits between 1996 and 2011 and the value of newly granted patents as a measure of valuable innovation output. Our results challenge the widely-held view that greater failure propensity of innovative firms drives their litigation risk. Instead, our findings suggest that valuable innovation output makes a firm an attractive litigation target. Our results support the view that the class action litigation system may have adverse effects on the competitiveness of the U.S. economy.
Author(s):
Prof. Oliver Spalt, Christoph Schneider
Cooperation Partners:
Chair of Financial Markets and Financial Institutions
Description:
In the standard regression of bidder announcement returns (ACARs) on bidder size in US data from 1981-2014, the coefficient on bidder size is positive and significant (0.5, t = 3.9) when the target is a public firm, where the average ACAR is negative (−1.4%); but it is negative and significant (−1.2, t = −11.5) when the target is a non-public firm, where average ACAR is positive (1.4%). We show this pattern of flipping signs is general and predictable. These pervasive patterns in the data are important for understanding value creation in corporate takeovers: while bidder size is widely regarded to be a central determinant of bidder announcement returns, the patterns are at odds with all leading explanations in the recent M&A literature for why size matters. We offer a simple alternative model in which size is not a proxy. Instead size scales per-dollar value created (or destroyed) in a given deal.
Author(s):
Prof. Oliver Spalt, Elisabeth Kempf
Cooperation Partners:
Chair of Financial Markets and Financial Institutions
Description:
Investor attention matters for corporate actions. Our new identification approach constructs firm-level shareholder “distraction” measures, by exploiting exogenous shocks to unrelated parts of institutional shareholders’ portfolios. Firms with “distracted” shareholders are more likely to announce diversifying, value-destroying, acquisitions. They are also more likely to grant opportunistically timed CEO stock options, more likely to cut dividends, and less likely to fire their CEO for bad performance. Firms with distracted shareholders have abnormally low stock returns. Combined, these patterns are consistent with a model in which the unrelated shock shifts investor attention, leading to a temporary loosening of monitoring constraints.
Author(s):
Cooperation Partners:
Vikas Agarwal, Chabi-Yo Foussini, Michael Ungeheuer, Florian Weigert
Description:
In this project, we show (i) that stocks whose returns show a strong lower-tail dependence with the market return (i.e. crash-sensitive stocks) earn positive abnormal risk premia. (ii) We provide evidence that a similar effect exists with respect to market liquidity, i.e., stocks whose individual liquidity and return has a strong lower tail dependence with market-liquidity and market-returns also deliver positive risk premia. (iii) We analyze whether hedge funds invest in crash-sensitive stocks and whether this explains their positive abnormal performance, finding confirmatory evidence for both questions.
The extreme value methods applied here to develop proxies for the crash-sensitivity of assets can be used to analyze systemtic stability of the financial sector.
Author(s):
Prof. Oliver Spalt, Alberto Manconi, Antonino Rizzo
Cooperation Partners:
Chair of Financial Markets and Financial Institutions
Description:
Using a novel text-based measure of top management team diversity, covering over 70,000 top executives in over 6,500 U.S. firms from 1999 to 2014, we show that analyst forecasts are systematically more pessimistic for firms with more diverse top management teams ( diverse firms ), especially for inexperienced analysts. Institutional investors, especially if located in conservative areas, are less likely to hold diverse firms, even though diverse firms do not exhibit inferior returns. Consistent with downward-biased expectations, abnormal returns on information-release days are systematically positive for diverse firms. Combined, our results suggest stock markets are biased against diversity in top management teams.