Corporations--Finance

The form of the partial acquisition provides a unique opportunity to analyze the influence the partial acquirer has on the target firm which is not available in full acquisitions. This dissertation investigates how the subsequent decisions of both the partial acquirer and the partially acquired target affect their own stock valuations and the stock valuations of the other firm. Only partial acquisitions of less than 50% were considered so that the effect of corporate control without overt control could be measured. An event-study methodology is used to measure the stock price reactions of both firms to the announcement of several type of events: (1) acquisition/divestiture strategies, (2) dividend changes and (3) capital structure changes. The observed stock price reactions are then examined cross-sectionally to test whether firm-specific factors of explicit and implicit controls are influential in explaining the stock price reactions. A second goal of this dissertation was to measure the long term valuations of both firms and the combined entity to determine if the form of the partial acquisition is superior to that of a full acquisition. Again, various firm specific factors of explicit and implicit controls are tested cross-sectionally to determine their explanatory power on the long term valuations of both firms. The results of the event studies support the hypotheses that the actions of the partial acquirer do have an effect on the stock valuations of the partially acquired target (and vice versa) without the acquirer possessing a majority ownership position. In addition, several measures of explicit and implicit controls were found to be significant determinants of the short term stock valuations. The long term valuation studies implied that the form of the partial acquisition may not be superior to that of a full acquisition. However, it was determined that certain firm-specific factors (relatedness of the acquirer and target) have a significant effect on the long-term valuations for both firms.

This study examines the significance and implications of Dividend Reinvestment Plans (DRPs) for the sponsoring company and for the shareholders' wealth from a theoretical and an empirical point of view. It develops a DRP theory, as an extension of dividend and capital structure theories. Furthermore, the study tests empirically several hypotheses related to the market reaction at the announcement of a DRP adoption, to the market reaction at the announcement of a DRP discontinuance and to the performance of the company sponsoring a DRP. The results indicated that the market reaction to the announcement of a DRP establishment is favorable on days 1 and 2, significant only for the latter. In the long-run, DRPs create value for the sponsoring firm and its shareholders (as measured by Tobin's Q). The announcement of a DRP termination is followed by a negative market reaction, consistent with the thesis of this study. Finally, several factors such as the DRP type (Type I and Type II plans), the industry of the sponsoring company (utilities and non-utilities), tax legislation, the discount feature and the dividend payout ratio are examined in relation to the market reaction at the announcement of a DRP adoption. The Type II DRPs create more favorable reaction to Type I plans at the announcement of their introduction. There are significant differences between the market reaction at the DRP introduction of utilities and non-utilities. The tax legislation affects corporate dividend policy and DRPs. Finally, the discount feature is not regarded favorably by investors as it was hypothesized, which explains its elimination from many DRPs in the recent years.

Despite extensive research, the rationale behind firms' decision to issue convertible debt is still unknown. On average, results indicate that the market reacts more negatively to new convertible debt issues of companies with higher cash ratios. Hence, I test whether convertible issuers are companies with limited access to the debt and equity markets. I find that pre-1990 issuers have a propensity to accumulate cash out of their cash flows prior to the convertible debt issue. Moreover, I provide strong evidence that convertible issuers substitute cash for both short-term debt and non-cash net working capital. I also test the pricing of new convertible debt securities at issue. I use a 100-step trinomial tree and find that convertible bonds are issued at an average discount 4.84 from their fair market value. Although the discount appears to be slightly higher in the pre-1990 period than the post-1990 period, the difference is not statistically significant. I also test for the determinants of the degree of underpricing of new convertible debt securities. I find that longer maturity issues and issues with higher coupon rates are more underpriced in the pre-1990 period. I attribute this finding to the poor stock and bond markets of the early and mid 1980s, which caused investors to become weary about long-term fixed income instruments. I find that longer maturity issues are less underpriced in the post-1990 period. This is probably because the value of the conversion option increases with maturity. Furthermore, it appears that issues with higher coupon rates and lower conversion premiums are less underpriced. I attribute this finding to investors being more informed in the post-1990 period and, therefore, less willing to accept higher conversion premiums. I also show that cash redemptions of convertible debt securities are not associated with a negative market reaction, even though forced conversions result in an abnormal negative return at the time of the announcement. Contrary to previous arguments by Stein (1992) and Moody's, I find no evidence that companies force conversion of their securities in order to avoid future bankruptcy.

Since the early 1990s there has been a substantial increase both in mergers and acquisitions (M&A) as well as in divestitures of high-tech companies. This dissertation examines the takeover and divestiture activity in high-tech markets in an effort to extend our current knowledge regarding high-tech companies. In that context, various firm characteristics and their relation to firm performance are investigated. Furthermore, an attempt is made to examine the role of investment banks and their impact---if any---on shareholder wealth. This study finds that for domestic high-tech acquisitions, the higher the level of the target's R&D expenditures, the lower the bidder's announcement period wealth effects. Furthermore, the more MEDIA attention the tech target receives prior to the acquisition the more favorably investors react to news about the acquisition. This finding is common both for domestic and international tech acquisitions. Findings on the role of investment bank advisors vary across the three studies. Essay 1 shows that high-tech acquisitions advised by top-tier investment banks perform worse upon announcement than acquisitions advised by lower-tier investment banks. In Essay 2 the tier of the investment bank advisor makes a difference only during the difficult and uncertain years of the tech downturn time period. Finally, in Essay 3 it is found that sellers benefit from the presence of an investment bank advising the buyer, suggesting that whenever the buyer uses an investment bank, the assets are divested at a high price. However, it is only during the years following the end of the tech-bubble period that buying-firm shareholders reacted less favorably to acquisitions of high-tech divested assets certified by an investment bank.

This dissertation examines the stock price behavior of newly public firms following two separate events, acquisition announcements and a large single day price change. For the first essay on overreaction, the changes in both liquidity and information are considered in studying the stock price reaction to a trigger of +/-15%. Over 2,600 events are evaluated for these newly public firms from 1992--2001 with events classified as occurring during either the quiet, lockup or post lockup period. For positive trigger events during the quiet period, a large one-day price change results in a significant underreaction. Positive triggers during the lockup period result in no significant abnormal returns, while a statistically significant overreaction occurs during the post lockup period. For negative triggers, while there are no significant abnormal returns for the reactions in any period, there is nevertheless a statistically significant difference between the reactions during the quiet and the post lockup periods. In addition, the degree of market reaction is found to be significantly different for events with information versus events without information. The second essay examines the stock price reaction when newly public firms make acquisition announcements. The belief is that these firms may experience a more positive reaction due to the firms' smaller size, need for immediate expansion, and increased corporate governance. On the other hand, these firms may lack the expertise to successfully integrate the acquisition targets. The results show that these newly public firms experience significant announcement returns of 2.63%. In general, higher announcement returns are found the smaller the acquirer, the smaller the relative size of the acquisition, and if the target is privately held. While the presence of venture capitalists and top tier underwriters result in lower announcement returns, returns are higher if the acquisition advisor is the same as the original underwriter. The buy and hold abnormal returns calculated using a matched sample are not significant. However, acquisitions with economies of scale for the motive have returns of 15% following one year, while those for economies of scope have -15% and the difference is significant.