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