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Do Mergers and Acquisitions Influence the Core Competency of Chinese Securities Companies? -- A Quantitative Analysis

Description

This thesis investigates whether mergers and acquisitions (M&As) help increase the competitive advantage and core competency of Chinese securities companies. Although M&As among Chinese securities companies were almost exclusively guided by the Chinese government in the earlier years, they have

This thesis investigates whether mergers and acquisitions (M&As) help increase the competitive advantage and core competency of Chinese securities companies. Although M&As among Chinese securities companies were almost exclusively guided by the Chinese government in the earlier years, they have increasingly become more market-driven in recent years. Many large Chinese securities companies have engaged in horizontal mergers, cross-industry mergers, and cross-border mergers to increase their market positions. However, there is little up-to-date evidence about how these market-driven M&As influence the competitive advantage and core competency of securities companies in China. I seek to fill this gap by conducting a systematic analysis about whether M&As increase the core competency of the acquiring companies using data collected over a five-year window from 2010 to 2014.

On the basis of prior research findings and the current situation of the Chinese securities industry, I first develop a theoretical model about the sources of competitive advantage for Chinese securities companies, and then compile a comprehensive list of observable indicators that can be used to assess a Chinese securities company’s core competency. Next, I conduct a quantitative analysis to assess the core competency and relative market positions of the leading Chinese securities companies using data from 2010 to 2014. Overall, the results suggest that market-driven M&As increases the core competency of the acquiring securities companies. I then conduct four in-depth case analyses to better understand the mechanisms through which M&As can help increase the acquiring firms' core competency. I conclude with a discussion of the findings and their implications for Chinese securities companies and the overseeing governmental agencies.

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Agent

Created

Date Created
2016

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Optimism, attribution and corporate investment policy

Description

Chief Executive Officers (CEOs) whose observed personal option-holding patterns are not consistent with theoretical predictions are variously described as overconfident or optimistic. Existing literature demonstrates that the investment and financing decisions of such CEOs differ from those of CEOs who

Chief Executive Officers (CEOs) whose observed personal option-holding patterns are not consistent with theoretical predictions are variously described as overconfident or optimistic. Existing literature demonstrates that the investment and financing decisions of such CEOs differ from those of CEOs who do not exhibit such behavior and interprets the investment and financing decisions by overconfident or optimistic CEOs as inferior. This paper argues that it may be rational to exhibit behavior interpreted as optimistic and that the determinants of a CEO’s perceived optimism are important. Further, this paper shows that CEOs whose apparent optimism results from above average industry-adjusted CEO performance in prior years make investment and financing decisions which are actually similar, and sometimes superior to, those of unbiased CEOs.

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Agent

Created

Date Created
2016

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Value creation of private equity funds: practices in China

Description

Based on multiple case studies of the transactions in China by private equity funds, this paper attempts to explore the value-creation capabilities of private equity funds at the transaction/deal level.

Previous studies on financial performance of PE funds utilized data

Based on multiple case studies of the transactions in China by private equity funds, this paper attempts to explore the value-creation capabilities of private equity funds at the transaction/deal level.

Previous studies on financial performance of PE funds utilized data collected from publically traded companies in European/US markets. By measuring financial performance of both “pre- and post-transactions,” these studies researched two questions: 1) Do buyout funds create value? 2) If they do, what are the sources of value creation? In general, studies conclude that private equity/buyout funds do create value at both the deal level and investor level. They also identified four possible sources of such value creation: 1) undervaluation, 2) leverage effect, 3) better governance, and 4) operational improvement.

However, relatively little is known about the process of value creation. In this study, I attempt to fill that gap, revealing the “secret recipe” of value creation.

By carefully looking into the process of value creation, this study suggests five propositions covering capabilities at 1) deal selection/screening, 2) deal structuring, 3) operational improvement, 4) investment exit, and 5) Top Management Team (TMT). These capabilities at private equity/buyout funds are critical factors for value creation. In a thorough review of the value-creation process, this paper hopes to:

1) Share real-life experiences and lessons learned on private equity transactions in China as a developing economy.

2) Reveal the process of deal/transaction to observe measures taken place within deal/transaction for value creation.

3) Show how well-executed strategies and capabilities in deal selection/screening, deal structuring, operational improvement, and investment exit can still create value for private equity firms without financial leverage.

4) Share the experience of State-Owned Enterprises (SOE) reform participated in by private equity firms in China. This could provide valuable information for policy makers in China.

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Agent

Created

Date Created
2016

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Inventory accumulation, cash flow, and corporate investment

Description

I show that firms' ability to adjust variable capital in response to productivity shocks has important implications for the interpretation of the widely documented investment-cash flow sensitivities. The variable capital adjustment is sufficient for firms to capture small variations in

I show that firms' ability to adjust variable capital in response to productivity shocks has important implications for the interpretation of the widely documented investment-cash flow sensitivities. The variable capital adjustment is sufficient for firms to capture small variations in profitability, but when the revision in profitability is relatively large, limited substitutability between the factors of production may call for fixed capital investment. Hence, firms with lower substitutability are more likely to invest in both factors together and have larger sensitivities of fixed capital investment to cash flow. By building a frictionless capital markets model that allows firms to optimize over fixed capital and inventories as substitutable factors, I establish the significance of the substitutability channel in explaining cross-sectional differences in cash flow sensitivities. Moreover, incorporating variable capital into firms' investment decisions helps explain the sharp decrease in cash flow sensitivities over the past decades. Empirical evidence confirms the model's predictions.

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Agent

Created

Date Created
2013

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The rigor of negotiation: why public private partnerships are effective

Description

Public Private Partnerships (PPP) have been in use for years in the United Kingdom, Europe, Australia and for a shorter time here in the United States. Typical PPP infrastructure projects include a multi-year term of operation in addition to constructing

Public Private Partnerships (PPP) have been in use for years in the United Kingdom, Europe, Australia and for a shorter time here in the United States. Typical PPP infrastructure projects include a multi-year term of operation in addition to constructing the structural features to be used. Early studies are proving PPP delivery methods to be effective at construction cost containment. An examination of the key elements that constitute the early stage negotiation reveal that there is room for negotiation created by the governing documentation while maintaining a competitive environment that brings the best value available to the Public entity. This paper will examine why PPP's are effective during this critical construction period of the facilities life cycle. It is the intent of this study to examine why the features and outcomes of more or less negotiation and the degree of rigor associated with it.

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Agent

Created

Date Created
2012

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The disposition effect as a determinant of the abnormal volume and return reactions to earnings announcements

Description

I examine the degree to which stockholders' aggregate gain/loss frame of reference in the equity of a given firm affects their response to the firm's quarterly earnings announcements. Contrary to predictions from rational expectations models of trade (Shackelford and Verrecchia

I examine the degree to which stockholders' aggregate gain/loss frame of reference in the equity of a given firm affects their response to the firm's quarterly earnings announcements. Contrary to predictions from rational expectations models of trade (Shackelford and Verrecchia 2002), I find that abnormal trading volume around earnings announcements is larger (smaller) when stockholders are in an aggregate unrealized capital gain (loss) position. This relation is stronger among seller-initiated trades and weaker in December, consistent with the cognitive bias referred to as the disposition effect (Shefrin and Statman 1985). Sensitivity analysis reveals that the relation is stronger among less sophisticated investors and for firms with weaker information environments, consistent with the behavioral explanation. I also present evidence on the consequences of this disposition effect. First, stockholders' aggregate unrealized capital gain position moderates the degree to which information-related determinants of trade (e.g. unexpected earnings, firm size, and forecast dispersion) affect abnormal announcement-window trading volume. Second, stockholders' aggregate unrealized capital gains position is associated with announcement-window abnormal returns, consistent with the disposition effect reducing the market's ability to efficiently incorporate earnings news into price.

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Agent

Created

Date Created
2012

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Intermediaries, illiquidity and corporate bond pricing

Description

This paper examines dealers' inventory holding periods and the associated price markups on corporate bonds from 2003 to 2010. Changes in these measures explain a large part of the time series variation in aggregate corporate bond prices. In the cross-section,

This paper examines dealers' inventory holding periods and the associated price markups on corporate bonds from 2003 to 2010. Changes in these measures explain a large part of the time series variation in aggregate corporate bond prices. In the cross-section, holding periods and markups overshadow extant liquidity measures and have significant explanatory power for individual bond prices. Both measures shed light on the credit spread puzzle: changes in credit spread are positively correlated with changes in holding periods and markups, and a large portion of credit spread changes is explained by them. The economic effects of holding periods and markups are particularly sharp during crisis periods.

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Agent

Created

Date Created
2012

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Analysts and corporate liquidity policy

Description

This paper examines how equity analysts' roles as information intermediaries and monitors affect corporate liquidity policy and its associated value of cash, providing new evidence that analysts have a direct impact on corporate liquidity policy. Greater analyst coverage (1) reduces

This paper examines how equity analysts' roles as information intermediaries and monitors affect corporate liquidity policy and its associated value of cash, providing new evidence that analysts have a direct impact on corporate liquidity policy. Greater analyst coverage (1) reduces information asymmetry between a firm and outside shareholders and (2) enhances the monitoring process. Consistent with these arguments, analyst coverage increases the value of cash, thereby allowing firms to hold more cash. The cash-to-assets ratio increases by 5.2 percentage points when moving from the bottom analyst-coverage decile to the top decile. The marginal value of $1 of corporate cash holdings is $0.93 for the bottom analyst-coverage decile and $1.83 for the top decile. The positive effects remain robust after a battery of endogeneity checks. I also perform tests employing a unique dataset that consists of public and private firms, as well as a dataset that consists of public firms that have gone private. A public firm with analyst coverage can hold approximately 8% more cash than its private counterpart. These findings constitute new evidence on the real effect of analyst coverage.

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Created

Date Created
2012

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Mutual monitoring and corporate governance

Description

Mutual monitoring in a well-structured authority system can mitigate the agency problem. I empirically examine whether the number 2 executive in a firm, if given authority, incentive, and channels for communication and influence, is able to monitor and constrain the

Mutual monitoring in a well-structured authority system can mitigate the agency problem. I empirically examine whether the number 2 executive in a firm, if given authority, incentive, and channels for communication and influence, is able to monitor and constrain the potentially self-interested CEO. I find strong evidence that: (1) measures of the presence and extent of mutual monitoring from the No. 2 executive are positively related to future firm value (Tobin's Q); (2) the beneficial effect is more pronounced for firms with weaker corporate governance or CEO incentive alignment, with stronger incentives for the No. 2 executives to monitor, and with higher information asymmetry between the boards and the CEOs; (3) such mutual monitoring reduces the CEO's ability to pursue the "quiet life" but has no effect on "empire building;" and (4) mutual monitoring is a substitute for other governance mechanisms. The results suggest that mutual monitoring by a No. 2 executive provides checks and balances on CEO power.

Contributors

Agent

Created

Date Created
2012

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Information conduit or agency cost: top management and director interlock between acquirers and targets

Description

This paper investigates the role of top management and board interlocks between acquirers and targets. I hypothesize that an interlock may exacerbate agency problems due to conflicting interests and lead to value-decreasing acquisition. An interlock may also serve as a

This paper investigates the role of top management and board interlocks between acquirers and targets. I hypothesize that an interlock may exacerbate agency problems due to conflicting interests and lead to value-decreasing acquisition. An interlock may also serve as a conduit of information and personal experience, and reduce the cost of information gathering for both firms. I find supporting evidence for these two non-mutually exclusive hypotheses. Consistent with the agency hypothesis, interlocked acquirers underperform non-interlocked acquirers by 2% during the announcement period. However, well-governed acquirers receive higher announcement returns and have better post-acquisition performance in interlocked deals. The proportional surplus accrued to an acquirer is positively correlated with the interlocking agent's ownership in the acquirer relative to her ownership in the target. Consistent with the information hypothesis, when the target's firm value is opaque, interlocks improve acquirer announcement returns and long-term performance. Interlocked acquirers are also more likely to use equity as payment, especially when the acquirer's stock value is opaque. Target announcement returns are not influenced by the existence of interlock. Finally, I find acquisitions are more likely to occur between two interlocked firms and such deals have a higher completion rate.

Contributors

Agent

Created

Date Created
2012