How Proxy Contests Affect Corporate Policy

Activist investors that believe an agency problem exists between shareholders and management may attempt a proxy contest aimed at specific issues or control of the board.  Research shows that, in anticipation of a proxy contest, managers make significant adjustments in favor of shareholders on a wide array of corporate policies, including R&D expenditures, capital expenditures, leverage, dividends, management compensation, and CEO tenure.  Furthermore, Brav, Jiang, Partnoy, and Thomas (2008) and Klein and Zur (2009) document that activist hedge funds often use a proxy threat to get what they want from incumbent managers. From this perspective, the threat of a proxy … Read more

Can Investors Anticipate Post-IPO Mergers and Acquisitions?

Of the nearly 6,000 U.S. firms that conducted initial public offerings between 1980 and 2008, 38 percent became merger bidders within three years after the IPO and 12 percent became takeover targets. It is important that investors understand these developments, given how often post-IPO M&A activity occurs and how much it can affect the value of companies.

Take for instance First Solar and Paypal.  First Solar, the second largest maker of solar panels worldwide, explicitly disclosed that a primary use of its 2006 IPO proceeds would be to engage in acquisitions to achieve vertical integration. Not surprisingly, First Solar acquired … Read more

Community Banks Play an Important Role in International Trade

Small and medium-size enterprises (SMEs) play a significant role in the global economy, accounting for a substantial portion of employment and domestic production. According to some estimates, SMEs’ contribution to gross domestic product exceeds 51 percent in high-income countries, consistent with the general consensus that SMEs are “engines” of economic growth. With an increasing number of SMEs engaging in international transactions, their influence on the volume of international trade has increased as well. In the U.S alone, SMEs represented 97 percent of all importers and 98 percent of all exporters, and accounted for 31 percent and 33 percent of imported … Read more