ADVANCES IN CORPORATE FINANCE AND ASSET PRICING i This page intentionally left blank ii ADVANCES IN CORPORATE FINANCE AND ASSET PRICING EDITED BY L RENNEBOOG Department of Finance and CentER, Tilburg University, The Netherlands TILEC (Tilburg Law and Economics Center) ECGI (European Corporate Governance Institute) Amsterdam – Boston – Heidelberg – London – New York – Oxford Paris – San Diego – San Francisco – Singapore – Sydney – Tokyo iii ELSEVIER B.V Radarweg 29 P.O Box 211, 1000 AE Amsterdam, The Netherlands ELSEVIER Inc 525 B Street, Suite 1900 San Diego, CA 92101-4495 USA ELSEVIER Ltd The Boulevard, Langford Lane Kidlington, Oxford OX5 1GB UK ELSEVIER Ltd 84 Theobalds Road London WC1X 8RR UK © 2006 Elsevier B.V All rights reserved This work is protected under copyright by Elsevier B.V., and the following terms and conditions apply to its use: Photocopying Single photocopies of single chapters may be made for personal use as allowed by national copyright laws Permission of the Publisher and payment of a fee is required for all other photocopying, including multiple or systematic copying, copying for advertising or promotional purposes, resale, and all forms of document delivery Special rates are available for educational institutions that wish to make photocopies for non-profit educational classroom use Permissions may be sought directly from Elsevier’s Rights Department in Oxford, UK: phone (+44) 1865 843830, fax (+44) 1865 853333, e-mail: permissions@elsevier.com Requests may also be completed on-line via the Elsevier homepage (http://www elsevier.com/locate/permissions) In the USA, users may clear permissions and make payments through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; phone: (+1) (978) 7508400, fax: (+1) (978) 7504744, and in the UK through the Copyright Licensing Agency Rapid Clearance Service (CLARCS), 90 Tottenham Court Road, London W1P 0LP, UK; phone: (+44) 20 7631 5555; fax: (+44) 20 7631 5500 Other countries may have a local reprographic rights agency for payments Derivative Works Tables of contents may be reproduced for internal circulation, but permission of the Publisher is required for external resale or distribution of such material Permission of the Publisher is required for all other derivative works, including compilations and translations Electronic Storage or Usage Permission of the Publisher is required to store or use electronically any material contained in this work, including any chapter or part of a chapter Except as outlined above, no part of this work may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the Publisher Address permissions requests to: Elsevier’s Rights Department, at the fax and e-mail addresses noted above Notice No responsibility is assumed by the Publisher for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions or ideas contained in the material herein Because of rapid advances in the medical sciences, in particular, independent verification of diagnoses and drug dosages should be made First edition 2006 Library of Congress Cataloging in Publication Data A catalog record is available from the Library of Congress British Library Cataloguing in Publication Data A catalogue record is available from the British Library ISBN-10: 0-444-52723-0 ISBN-13: 978-0-444-52723-3 ∞ The paper used in this publication meets the requirements of ANSI/NISO Z39.48-1992 (Permanence of Paper) Printed in The Netherlands Working together to grow libraries in developing countries www.elsevier.com | www.bookaid.org | www.sabre.org iv This book is in the honour of Professor Dr Piet Duffhues Piet Duffhues has built out his entire career at Tilburg University His impact on financial economics in the Netherlands cannot be underestimated For four decades, he introduced modern financial economic theories in corporate finance and asset pricing in his numerous publications and leading Dutch textbooks He is an all-round academic focusing on the practical relevance and implementability of financial theories As stimulating lecturer, he shaped the economic insights of many thousands of students With Piet Duffhues’ retirement, the academic profession in the Netherlands loses an outstanding lecturer, a prolific researcher and a fine colleague v This page intentionally left blank vi Contents Dedication of the book to Piet Duffhues v Contents vii Contributors xi List of Figures xxi List of Tables xxv Introduction: Corporate Restructuring and Governance, Valuation and Asset Pricing Luc Renneboog Part Corporate Restructuring Mergers and Acquisitions in Europe Marina Martynova and Luc Renneboog 15 The Performance of Acquisitive Companies Kees Cools and Mindel van de Laar 77 The Announcement Effects and Long-run Stock Market Performance of Corporate Spin-offs: International Evidence Chris Veld and Yulia Veld-Merkoulova 105 The Competitive Challenge in Banking Arnoud Boot and Anjolein Schmeits 133 Consolidation of the European Banking Sector: Impact on Innovation Hans Degryse, Steven Ongena and Maria Fabiana Penas 161 vii viii Contents Part Corporate Governance Transatlantic Corporate Governance Reform Joseph McCahery and Arman Khachaturyan The Role of Self-Regulation in Corporate Governance: Evidence and Implications from the Netherlands Abe de Jong, Douglas DeJong, Gerard Mertens and Charles Wasley 199 Shareholder Lock-in Contracts: Share Price and Trading Volume Effects at the Lock-in Expiry Peter-Paul Angenendt, Marc Goergen and Luc Renneboog 235 10 The Grant and Exercise of Stock Options in IPO Firms: Evidence from the Netherlands Tjalling van der Goot, Gerard Mertens and Peter Roosenboom 11 Institutions, Corporate Governance and Firm Performance Jos Grazell 189 277 293 Part Capital Structure and Valuation 12 Why Do Companies Issue Convertible Bonds? A Review of the Theory and Empirical Evidence Igor Loncarski, Jenke ter Horst and Chris Veld 311 13 The Financing of Dutch Firms: A Historical Perspective Abe de Jong and Ailsa Röell 341 14 Corporate Financing in the Netherlands Rezaul Kabir 365 15 Syndicated Loans: Developments, Characteristics and Benefits Ger van Roij 381 16 The Bank’s Choice of Financing and the Correlation Structure of Loan Returns: Loans Sales versus Equity Vasso Ioannidou and Yiannos Pierides 17 Shareholder Value and Growth in Sales and Earnings Luc Soenen 393 411 Part Asset Pricing and Monetary Economics 18 The Term Structure of Interest Rates: An Overview Peter de Goeij 423 Contents ix 19 Incorporating Estimation Risk in Portfolio Choice Jenke ter Horst, Frans de Roon and Bas Werker 449 20 A Risk Measure for Retail Investment Products Theo Nijman and Bas Werker 473 21 Understanding and Exploiting Momentum in Stock Returns Juan Carlos Rodriguez and Alessandro Sbuelz 485 22 Relating Risks to Asset Types: A New Challenge for Central Banks Jacques Sijben 505 Author Index 519 Subject Index 531 524 Author Index Johnsen, B.D., 107, 126 Johnson, S.A., 129 Johnson, W.B., 491 Jones, D., 409 Jonker, J.P.B., 343–346, 353 Jordan, B.D., 244, 258, 264 Jorion, P., 449 Jung, A., 417, 419 Kabir, R., 220, 230, 282, 369, 372–374, 376–378 Kahn, C., 152 Kahn, J., 152 Kale, P., 412 Kallberg, J.G., 175 Kan, R., 440–442 Kang, J., 29, 321–322, 373 Kane, E., 182 Kaplan, S., 26–27 Karceski, J., 88, 143, 177 Karolyi, A., 220, 435–436, 438 Kashyap, A., 137–138, 143–144, 154 Kaul, G., 489, 493 Keim, D., 487 Key, K.G., 244, 251 Khurshed, A., 235–238, 241–244, 250, 255, 258 Kim, E.H., 27 Kim, J.H., 27 Kim, T.S., 486, 494, 499 Kim, Y.O., 317–318, 330, 334–335 Kindleberger, Ch., 507 King, R.G., 164 Kini, O., 247 Klein, D.P., 129 Klein, R.W., 449, 453–454 Knoeber, C.R., 208 Koedijk, K.G., 365, 438–439 Koelewijn, J., 346 Koh, B.S.K., 129 Koh, F.C.C., 129 Koh, W.T.H., 129 Koijen, R.S.J., 501 Korajczyk, R., 490 Korkie, B., 449 Kortum, S., 179 Korwar, A.N., 336 Kozicki, S., 444 Krahnen, J.P., 182 Kraus, A., 317, 324, 328–330, 333–335 Kremp, E., 242, 255 Kreps, D., 429 Krigman, L., 262 Krishnaswami, S., 105–107, 109, 113, 117, 122, 129 Kroszner, R.S., 155, 171, 353 Krugman, P., 513 Kurth, A., 258 Kwok, C.C.Y., 321–322 Kwon, H.C., 425–428, 433, 437 Kydland, F., 505 La Porta, R., 16, 48, 50–56, 106, 108, 121, 125, 171, 199, 201, 203–205, 208, 216, 304, 352 Labini, M.S., 181 Laeven, L., 143, 169 Lagnado, R., 485 Lai, K., 374 Lakonishok, J., 88, 490 Lamont, O., 143, 154 Lane, W., 28 Lang, L., 16, 27, 48 Lang, M., 277, 280 Lang, W.W., 175 Ledoit, O., 451, 469 Lee, I., 376 Lee, S.H., 322, 325, 330 Lehn, K., 28 Leland, H., 243 Lemgruber, E.F., 108, 129 Lerner, J., 179, 238, 245, 267 Leshchinskii, D., 78, 84, 98 Lettau, M., 487 Lev, B., 28 Levine, R., 143, 164, 169, 171 Levis, M., 373 Lewellen, J., 490 Lewellen, W., 28 Author Index Lewis, M., 317, 321–322, 326, 328–330, 334 Li, C., 443–445 Liang, N., 279 Liberti, J.M., 155, 182 Lie, E., 84 Lilien, S., 279 Lindenberg, E.B., 210 Lindsay, L., 179 Lins, K., 209 Lipsky, J., 510 Litterman, R., 441 Liu, L., 450 Liu, Y., 321, 323, 328, 330 Llerena, P., 181 Lo, A.W., 39, 69, 429–430, 440, 489, 493 Loayza, N., 164 Loderer, C., 26 Loewenstein, U., 451 Longstaff, F.A., 435–436, 438, 440–442 Lopez-de-Silanes, F., 16, 48, 50–56, 106, 108, 121, 125, 172, 199, 201, 203–205, 208, 216, 304, 352 Loughran, T., 84, 122, 376 Lowe P., 510, 513–514 Lubrano, M., 439 Ludvigson, S., 487 Lummer, S., 152 Lyon, J.D., 114–115, 129, 257 Lyon, R., 85 Lyrio, M., 444 MacKinlay, A.C., 39, 69, 429–430, 440, 489, 493 Maeijer, J.J.M., 207 Maes, K., 444 Magennis, D., 323, 326, 330 Maier, S., 301 Majluf, N.S., 316–318, 321, 326, 335, 373, 393, 396 Malatesta, P.H., 96, 207 Mandelker, G., 27, 84 Manigart, S., 238 Mannonen, P., 174 Maris, B.A., 281 525 Maris, J.M., 281 Markowitz, H.M., 449, 454 Marquez, R., 153, 173 Marra, T., 220, 230 Marsh, P., 37 Martin, J.S., 490 Martin, K., 26, 28 Martynova, M., 49 Maskin, E., 152, 154 Masschelein, N., 177 Masulis, R.W., 129, 336, 373 Maxwell, W.F., 129 May, D.O., 412 Mayer, C., 27–28, 152, 173, 180, 205, 304–305 Mayers, D., 108, 129, 317, 319, 324, 327, 330, 332, 334–335 McAndrews, J., 175 McCahery, J.A., 48, 235, 237–238 McConnell, J.J., 26–28, 59, 106, 152, 204, 208, 229–230, 328 McCulloch, J.H., 425–428, 433, 437 McDonald, R.P., 382 McKinsey, 149 Means, G., 199 Meckling, W.H., 199, 208, 302, 318, 412 Megginson, W.L., 238 Mehran, H., 279 Mehrotra, V., 105, 107, 117, 129 Menichini, A., 172 Mentré, P., 382 Mertens, G.M.H., 229, 282, 348–349 Merton, R., 144, 278 Merton, R.C., 435, 488 Mester, L., 136–137, 146, 153–154 Michalsen, D., 373 Mikkelson, W.H., 113, 322, 325, 336 Milbourn, T.T., 153, 414 Miles, J.A., 106, 109, 124 Millar, J.A., 279 Miller, M.H., 315, 342, 511 Miller, N.M., 154, 175, 182 Minetti, R., 176 526 Author Index Minsky, H., 507 Mitchell, D., 489 Mitchell, J., 177 Mitchell, K., 154 Mitchell, M.L., 26–28, 84–85, 97, 129 Mittoo, U.R., 329, 332–334 Modigliani, F., 315, 342 Moeller, S., 26–27, 59, 62, 66 Moerland, P.W., 108 Mohan, N.J., 238 Mokken, R., 357 Moloney, N., 278 Morck, R., 27–28, 208 Moskowitz, T.J., 177, 491 Mueller, D., 84 Mulherin, J.H., 26, 129 Mullineaux, D.J., 136, 386 Mullins, D., 26, 78, 84–85, 96–97 Mullins, Jr., D.W., 336 Munnell, A.H., 473 Murgia, M., 154 Murphy, K.J., 278, 413 Murray, L., 117, 129 Muscarella, C.J., 328 Myers, S.C., 316–318, 321, 326, 335–336, 365, 373, 393, 396, 417 Nagel, S., 491 Naik, N.Y., 107, 126 Nain, A., 85 Nanda, V., 373 Naranjo, A.M., 92 Narayanan, V., 90 Netter, J., 67, 84, 101, 412 Nethe, M.Y., 210 Newbery, D.M.G., 166 Newey, W.K., 433 Nijman, T.E., 461 Nimalendran, M., 92 Nini, G.P., 385–386 Nissen, F.G.J.A., 438–439 Nolle, D.E., 175 Norli, O., 129 Nowak, E., 244 Ofek, E., 27, 78, 143–144, 154, 244–245, 251 Omberg, E., 486, 494, 499 Ongena, S., 153, 155, 169, 171–172, 175–177, 182 Onvural, N., 154 Opler, T., 418 Owers, J.E., 109, 122, 129 Ozbilgin, M., 106 Padilla, A.J., 174 Padula, M., 172 Pagano, M., 172, 174 Palepu, K.G., 26–28, 78 Palia, D., 27 Palomino, F., 180 Panetta, F., 178 Papaioannou, G., 29 Parrino, R., 129 Partch, M.M., 113, 322, 325, 336 Patro, D.K., 490 Pavel, C., 394 Pearson, N.D., 439–441 Peek, J., 177 Peet, J., 347 Penas, M.F., 182 Pennacchi, G.G., 394–395, 409, 440–442 Pennachi, G., 153 Perez-Quiros, G., 417 Perfect, S.B., 210 Petersen, M.A., 137, 141, 152–154, 175–176, 182 Phillis, D., 394 Piazzesi, M., 443–445 Pilcher, P., 239 Pilcher, J.C., 329, 331, 334 Pinches, G., 90 Pinkowitz, L., 418 Poetgens, F.P.G., 130 Polak, N.J., 341 Politis, D., 467 Post, J.G., 352 Author Index Poterba, J., 489, 493 Poulsen, A., 26 Pound, J., 208, 219 Prescott, E.C., 395, 505 Pritchard, A.C., 353 Pritsker, M., 439 Pulvino, T.C., 84, 97 Puri, M., 155, 179, 409 Pyle, D., 243 Raedler, A.J., 130 Raes, J.-P., 173 Rajan, R., 57, 136–137, 141, 143, 152–155, 371 Rajan, R.G., 164, 175–176, 182 Ramezani, C., 417, 419 Ramirez, C., 155 Randone, P.A., 244 Rao, R.P., 129 Ratti, V., 449 Rau, P.R., 27, 78, 84 Ravenscraft, D.J., 28, 84 Remolona, E.M., 441 Renneboog, L., 26–27, 48–49, 235–238, 241–243, 250, 255, 258, 369 Renooij, D.C., 344, 363 Resnick, B.G., 449, 453 Richardson, M., 244–245, 251 Ritter, J.R., 122, 376 Robinson, T., 507 Rochira, C., 244 Rodriguez, J.C., 501 Roell, A., 220, 230 Rogalski, R.J., 317, 321–322, 326, 328–330, 334 Roll, R., 98, 413 Romano, J., 467 Roosenboom, P., 282, 367, 371–374, 376–378 Rosenfeld, J.D., 109, 129 Rosengren, E.S., 177 Ross, S.A., 210, 311, 366, 435–436 Rossi, S., 50, 68 Roten, I.C., 244, 258, 264 Rouwenhorst, K.G., 88, 489–490 527 Ruback, R.S., 26–27, 67, 78, 90 Ruckes, M., 176 Rudebusch, G.D., 443–445 Rusebusch, G.D., 444 Rutherford, M., 294 Ryan, H.E., 279 Ryngaert, M., 84, 92 Sadka, R., 490 Saidenberg, M.R., 385 Samolyk, K.A., 409 Samwick, A.A., 412 Sanders, S., 435–436, 438 Sangvinatsos, A., 486 Santa-Clara, P., 440 Sapienza, P., 153, 177 Saunders, A., 143, 152–153, 177, 393, 409 Sbuelz, A., 501 Scalise, J., 143–144, 153–154 Scalise, J.M., 177 Schaefer, S., 435 Schall, L., 28 Scharfstein, D., 56, 138, 152 Scheinkman, J., 441 Scherer, F.M., 28, 84 Schiantarelli, F., 164 Schiereck, D., 154, 182 Schijf, H., 353 Schipper, K., 78, 84–85, 96, 99, 109, 129, 227 Schlingemann, F., 26–27, 59, 62, 66 Schmeits, A., 141, 152–154 Schmid, F., 231, 368 Schoar, A., 171 Schoenberg, R., 28 Scholes, M., 29, 278, 281–282, 436 Schoors, K., 180 Schotman, P.C., 438–439 Schumpeter, J.A., 166 Schwartz, E.S., 317, 320, 324, 328, 330, 333–334, 337, 435–436, 438, 440–442, 485 Schwartz, T.V., 322 Schwartz Jr., W.C., 491 528 Author Index Schweiger, D.M., 78, 98 Schwert, G.W., 26–28, 30, 487 Schwienbacher, A., 180 Scott, J., 302, 305 Scott, L., 440–442 Servaes, H., 26–27, 29, 57, 143, 208, 230 Sevestre, P., 242, 255 Seward, J.K., 317, 321–322, 326, 328–330, 334 Shaffer, S., 154 Sharpe, S., 153 Sheehan, D.P., 208 Shelton, L.M., 62 Shiller, R.J., 425–426, 430, 432–434, 487 Shin, H., 57, 143, 154 Shleifer, A., 16, 27–28, 48, 50–56, 97, 106, 108, 121, 125, 172, 199, 201, 203–205, 208, 216, 298, 304, 352 Siconolfi, M., 154 Sijben, J., 515, 517 Simon, H., 152 Simonato, J.G., 441 Simonis, P.H.M., 130–131 Singh, H., 412 Singleton, K.J., 434, 440, 442 Sirri, E., 490 Sivakumar, R., 105, 107, 117, 129 Slagter, W.J., 206, 229 Slovin, M.B., 129, 152, 374 Sluyterman, K.E., 349, 362 Smith, A., 109, 129 Smith, C.W., 279, 359 Smith, D.C., 153, 176–177 Smith, D.M., 329, 332, 334, 337 Smith, R.L., 27, 150 Soenen, L.A., 417, 419 Solow, R., 163 Song, W., 180 Speight, H., 341 Spiess, D., 376 Srinivasan, A., 175 Stafford, E., 26–27, 84–85, 97, 129 Stambaugh, R.F., 487 Steensgaard, N., 362 Stegemoller, M., 84, 101, 412 Stein, J.C., 29, 56, 137, 154, 175, 177, 179, 182, 317–319, 324, 328, 330, 332, 334–335, 337 Sterken, E., 230, 368 Stigler, G., 199 Stiglitz, J.E., 321 Stiles, P., 204 Stolin, D., 59 Stone, A., 507 Stokman, F.N., 353 Stomper, A., 239 Strahan, P.E., 143, 169, 171–172, 175, 353, 385, 409 Strickland, D., 209 Stulz, R.M., 26–27, 57, 59, 62, 66, 143, 154, 207, 220, 321–322, 373, 418 Suay, J., 451 Subrahmanyam, A., 490 Subramaniam, V., 105–107, 109, 113, 117, 122, 129 Sufi, A., 136 Sullivan, R., 470 Summers, L.H., 489, 493 Sun, T.S., 440–441 Sundaram, A., 60, 84–85, 87, 96, 99–100 Sundaresan, S.M., 435 Sundén A., 473 Sushka, B., 152 Sushka, M.E., 129, 374 Symeonidis, G., 166 Tang, C., 129 Tasche, D., 476–477 Taylor, B., 204 Taylor, J.B., 443 Tehranian, H., 154 ter Horst, J.R., 452–453, 457 Thakor, A.V., 137, 140–141, 148, 152–154, 174, 176, 390, 414 Thesmar, D., 171 Thibodeaux, V.L., 129 Thomas, H., 387–388 Author Index Thomas, J., 490 Thompson, R., 78, 84–85, 96, 99, 227 Tilles, S., 412 Timmerman, A., 417, 470 Timmerman, L., 210 Tinsley, P.A., 444 Tirole, J., 152, 154, 281, 287, 289 Titman, S., 26–27, 85, 372, 489–490 Tong, W., 490 Toyne, M.F., 279 Travlos, N.G., 27, 29, 204 Trichet, J., 506 Trojani, F., 501 Tsai, C.-L., 85, 115, 129 Tsangarakis, N., 373 Tufano, P., 490 Udell, G.F., 137, 152–155, 174–175, 177, 409 Unal, H., 182 Van Cayseele, P., 136 van Damme, E., 166 Van de Gucht, L.M., 323–324, 329–330, 333 van de Laar, M., 98 Van den Broeke, W., 353 Van der Vennet, R., 146 van der Wel, F., 229 Van Dijk, R., 336 van Ees, H., 230 Van Ees, H., 368 Van Frederikslust, R., 129 Van Goor, L., 346 Van Nederveen Meerkerk, E., 347 Van Olffen, M., 130–131 van Roij, G.P.L., 382 Van Sonderen, J.C.M., 290 Van Zanden, J.L., 344 Vasicek, O., 435–436, 441 Veld, C.H., 220, 230, 287, 321, 323, 336–337, 373, 375–376 Veld-Merkoulova, Y.V., 129, 131 529 Vente, J., 230 Vercammen, J.A., 174 Verdam Committee 205 Vermaelen, T., 27, 78, 84 Vermeulen, F., 98 Very, P., 78, 98 Vesala, J., 173 Vespro, C., 278 Viceira, L., 486 Viceira, L.M., 489 Vienot, M., 243 Vijh, A., 84 Vishny, R., 16, 27–28, 48, 50–56, 106, 108, 121, 125, 304 Vishny, R.W., 97, 172, 199, 201, 203–205, 208, 298, 352 Vives, X., 173, 182 Volpin, P., 50, 68 von Rheinbaben, J., 176 von Thadden, E.-L., 152, 172 Voogd, R.P., 207 Wachter, J.A., 434, 486, 499–500 Wagner, G.A., 171 Wahal, S., 106 Wahrenburg, M., 182 Walker, D.I., 277 Walking, R.A., 207 Walkling, R.A., 27, 78, 84 Walkner, C., 173 Walter, I., 150 Wansley, J., 28 Warner, J.B., 37, 41, 68 Wang, Z., 387–388 Wasley, C.E., 39, 348–349 Wasseur, F.W., 353 Watts, E., 323, 326, 330 Watts, R., 279 Watts, R.L., 359 Weil, 199, 203–204 Weintrop, J., 129 Weisbach, M., 26–27 Weisbenner, S.J., 279 Weiss, A., 164, 321 530 Author Index Weiss, M., 154–155 Welbourne, T.M., 279–280 Weller, P., 511 Werker, B.J.M., 452–453, 457, 461 West, K., 433 Westerfield, R.W., 311, 366 Whadwani, S., 510 Wheelock, D.C., 171 White, A., 435 White, H., 285–286, 288, 433, 470 White, L.J., 15, 175, 178 White, W., 513–514 Wiggins, R.A., 279 Wiles, K.W., 210 Wilhelm, W.J., 173 Williamson, O.E., 294, 304 Williamson, R., 418 Winkelman, H.J.M., 349 Winton, A., 136 Wolff, C.C.P., 438–439 Wolfson, M., 29 Womack, K.L., 262 Woolridge, J.R., 106, 124 Woosley, L., 175 Wright, S., 323, 326, 330 Wu, T., 444 Wu, Y., 490 Wymeersch, E., 243 Yafeh, Y., 180 Yamaguchi, Y., 513 Yang, H., 28 Yang, T.T., 281 Yi, H.C., 244, 258, 264 Yook, K., 414 Yook, K.C., 78, 84 Yosha, O., 174 Yost, K., 129 Zajac, E.J., 277, 279 Zakrajšek, E., 385 Zaman, D.F.M.M., 108 Zanoni, P., 244 Zaretsky, A.M., 175 Zeff, S.A., 229 Zellner, A., 227 Zenner, M., 29, 209 Zhang, L., 511 Zhang, X.F., 491 Zhou, H., 440 Zi, H., 154–155 Ziemba, W.T., 449 Zingales, L., 57, 143, 164, 205, 371 Zollo, M., 78, 84, 98 Zwiebel, J., 230, 320 Subject Index abnormal performance, 377 abnormal return, 375 abnormal stock return, 105 accountability, 517 accounting, 190–191, 193–197 acquirer, 81, 89, 98, 100 acquisitive growth strategy, 94 active portfolio-management strategies, 485, 499 adverse selection problems, 316 affine-yield models, 440–442 agency costs, 319, 326, 336, 393 agency problem, 316, 319, 412 agency structure problem, 302 agency theories, 317 announcement effect, 84–85, 93, 96–98, 366, 372–378 anti-takeover, 369 arranging banks, 385 asset allocation, 485–488, 493 asset bubble, 506, 510–512 asset growth, 94–95 asset pricing and monetary economics, 9–11 asset-dependent economy, 511 asset-price inflation, 506, 509 asymmetric information, 312, 315, 317, 319, 330, 334, 393–394, 400, 404, 408 attractiveness for investors, 389 audit firms, 190 auditing standards or accounting standards, 194 Austrian School, 506–508, 514 balance-of-risk strategy, 512, 516 bank loan, 365, 368 bank-based system, 162, 164, 180 banking competitive challenge in, 133–155 economics of, 135–140 traditional versus modern banking, 135–136 bank loans, 136–138 bank–borrower relationship, 137 securitization, and bank lending, 138–140 relationship banking, 140–141 consolidation trend in, 142–150, see also separate entry merger and acquisition wave in, 142 scale and scope economies in, see separate entry relationship banking and proprietary trading, combining, 144–146 alliances, joint ventures and the disaggregation of the value chain, in banking, 150–151 barriers, 171, 181 bid completion status, 54–56 bidder CAARs, 50 around the M&A announcement, 42 by bid attitude, 44 by bid completion status, 58 by corporate strategy, 60 in cross-border acquisitions by bidder legal origin, 56 in cross-border bids by target legal origin, 54 in domestic acquisitions by legal origin, 52 in domestic and cross-border bids, 48 by means of payment, 46 531 532 Subject Index by sub-periods of the fifth takeover wave, 65 by target legal status, 61 by the form of takeover, 63 bidder returns, 77, 96 bidding firms CAARs for, see bidder CAARs legal origin of, 50–54 versus target firms, 40–42 bilateral loans and, 381, 386 blockholder, 369 board, 368–369 bond, 366, 370, 375, 381, 383, 386, 388–390 bond market, 370, 381, 385–390 book value, 371, 374, 378 boom-bust cycle, 506–507, 511–512, 515, 517 branching deregulation, 171 breakthrough innovations, 161–162, 166–167, 179, 181 CAARs for target and bidding firms, 41–49 between Continental Europe and the UK, 50 capital accumulation, 164 Capital Asset Pricing Model (CAPM), capital market, 365–367, 370, 372, 375, 378 capital ratio, 394, 396, 408 capital requirement, 394, 396 capital structure, 309, 315–316, 319, 326, 332, 336, 342, 359, 362, 365–366, 371–372 irrelevance, 315 capital structure and valuation, 6–9 of banks, CAPM, 416–417 cash, 78, 84–86, 92, 96–97, 101 cash flow return on investment, 92 cash holdings, 418 causality, 90, 98, 100 central bank credibility, 506 certificates, 206–207, 212, 214, 216–217, 220, 222–223, 226 characteristics, 381, 384, 386–390 code law system, 304 common law system, 304 conglomeration, 144–146 consolidation, 161–162, 169–170, 172, 174–178, 180–181 consolidation trend in banking, 142–150 recent developments in, 142 diversification discount in, 143–146 scale and scope economies in, see separate entry continental European bids versus UK bids, 48–50 control, 365–366, 368 conversion price, 312, 324–325, 331, 336 conversion ratio, 318, 325, 336 convertible, 366, 375–376 convertible bonds, 311–312, 315–321, 324, 327, 329, 332–333, 335–336 theoretical motivation, 315, 317, 329–334 empirical research, 321, 324, 329–330, 335 wealth effects, 321–322, 324–325, 328, 335–336 survey evidence, 329, 333 convertible debt, 312, 315, 317–322, 324–336 corporate bonds, 428 corporate financing, 365, 378 corporate flexibility, 418 corporate governance, 4–6, 106, 108, 128, 199–205, 209–210, 217, 221–229, 368, see also corporate restructuring corporate governance codes, 294, 297, 300, 305–306 corporate governance mechanisms, 298 corporate restructuring, 1–4 and governance, valuation and asset pricing, 1–11 Corrado test, 38–39 correlation structure, 393–395, 397–399, 401–402, 408–409 correlation structure of loan returns, 393–395, 397–399, 401–402, 408–409 Subject Index cost of equity, 393 coupon interest, 311, 320 credibility-paradox, 506 credit enhancement, in banking, 139 credit ratings and, 383, 388, 390 credit-gap, 513 cross-border restrictions, 171 cross-border versus domestic acquisitions, in European M&As, 17–18, 46–48 cross-listing, 208–210, 216–217, 220, 223 Cumulative Average Abnormal Returns (CAARs), 2–3, 16, 106, 114–121, 323, 326, see also bidder CAARs; target deal value, 86–87, 89–91, 99–101 debt, 92–93, 365, 370–372, 375–379 debt crisis, 381–383, 387 debt ratio, 342, 359–360, 362 default, 394–395, 398–399, 408–410 deflation, 508–509 deflation-bias, 513 delayed equity motive, 327, 335 deregulation, 162–163, 169–172, 181 disclosure, 190, 193, 195–196 discount bonds, see zero-coupon bonds dividend yield, 88–89, 92–93 domestic acquisitions versus cross-border acquisitions, in European M&As, 46–48 Economic Value Added (EVA), 413 economies of scale, 108, 126 efficient market hypothesis, 486 equal-weighted returns, 122–125 equity issue, 372–374, 376–378 equity premium, 510, 512 estimation error, 452–453, 456, 460, 468–469 estimation risk, 449–451, 453–455, 458–470 Euro syndication business, 382 Eurodollar markets and, 382 European M&As and bidder CAARs, see separate entry cross-border versus domestic acquisitions in, 17–18 533 data analysis results, 39–64 data sources, descriptive statistics and methodology in, 29–39 in Europe, 15–68 fifth wave of,16–26 friendly M&As versus hostile bids, 42–44 industry clusters and focus versus a diversification strategies in, 18–22 intra-industry takeovers in, 22 means of payment in, 22–24 sample composition in, 34–35 sample selection in, 29–30 sample statistics of, 30–36 and target CAARs, see separate entry event study, 376 event study methodology, 113 evidence, 366, 378–379 excess performanc, 377 excess return, 374, 376 expectation hypothesis, of term structure, 430–434 family firm, 351, 359–360, 362 fifth takeover wave, 16–26, 62–64 fifth takeover wave, takeovers at the start, the peak and the decline of the, 62–64 financial bubble, 506, 511 financial development, 161, 164 financial distress, 418 financial imbalances, 506, 508–517 financial instability hypothesis, 513 financial liberalization, 164 financial system, 365–366, 371, 378–379, 381, 389 fixed-income securities, 423 flexible-inflation targeting, 515 focus versus diversification strategies, in European M&As, 56–59 free cash flow, 373, 375, 378–379 frequent acquirers, 84, 88, 90, 98 full versus partial acquisitions, 60–62 GDP, 367, 374–375, 378 Generalized Regime-Switching (GRS) model, 439 534 Subject Index Generally Accepted Accounting Principles (GAAP), 195 geographical focus, 108, 113, 120–122, 125–126 geometric Brownian motion, 486 glamor buyers, 84 global mergers, 79 “Greenspan’s put”, 511 growth options, 417–418 growth rate, 78, 90, 92, 96, 99–100 growth strategies, 78, 83, 86, 90–91, 93–95, 99 Guise, 10, 477–478, 481–484 interlocking directorates, 216, 219, 223, 353, 359, 362 Internal controls, 190, 193, 197 International Accounting Standards Board (IASB), 196 Inverted yield curve, 424–425 investment banks, 383, 385–387 investment-gap, 513 investor protection, 298, 304–306 IPO, 367, 371 issue announcements, 321–322, 325, 335 harmonization, 191, 197 hostile bids versus friendly M&As, 42–44 hostile takeovers, 25 housing equity withdrawal, 511 hump shaped yield curve, 424–425 hybrid securities, 311 knowledge economy, 164 idiosyncratic risk, 416–417 industrial focus, 105–107, 112–113, 117, 119, 121–122, 125–126, 128 industrial structure, 171 industry clusters and focus versus a diversification strategies, in European M&As, 18–22 industry division, 86–87 information asymmetry, 105–107, 112, 117, 119–120, 126, 128–129, 373–374, 377, 379 Information Technology (IT) and banking, 133 IT-related benefits, in scale and scope economies, 147–148 Initial Public Offerings (IPOs), 1, 5–6, 277 Institute of Brokerage for Investment Services (IBES), 112 institutional economics, 293–294, 296 insurance companies, 346–347, 363 interest rates definitions, notation and statistics in, 424–429 term structure of, 423–445 term structure of, interpretation, 430–445 Jensen’s alpha, 414 legal systems, 171 leverage, 371–372, 375 leveraged buy-outs and, 383 liberalization, 189 Lisbon Agenda, 163, 168, 181 loan sales, 393–395 loans from banks, 136–138 lock-in agreements, 236–238, 243, 245–246, 251, 262–263, 270 lock-in expiry, 236, 244–247, 254, 258, 262, 264–267, 270 long-run excess returns, 106–107, 114, 122, 124–125, 128–129 long-run performance, 106–107, 122, 126, 128 long-term performance, 84, 98–99 M&A capabilities, 84, 95, 98, 100 macroeconomic variables, and term structure, 442–445 managerial entrenchment, 317, 320, 324, 329, 333–335, 337 market capitalization, 88–89, 93 market efficiency, 122, 124, 128 market liquidity of, 387, 390 market value, 365–366, 371–374, 376, 378 Market Value Added (MVA), 413 market-based system, 164 market-to-book value, 415 mean reversion, 485, 500 Subject Index mean-variance analysis, 471 merger waves, 79 mergers, 172–173, 176–178, 182 Mergers and Acquisitions (M&As), 1–2, 4, 77, see also European M&As mixed growth strategy, 78, 86–88 momentum, 485–486, 489–492, 494, 496, 498–500 monetary economics, and asset pricing, 9–11 National Champions, 170, 172, 182 New York Stock Exchange (NYSE), 190, 193 nominal value 311, 336 Nouveau Marché, 235–240, 242–243, 245, 247–248, 251, 253–254, 256–257, 264–267 operating performance, 376–379 organic growth strategy, 78, 85, 99–100 overinvestment problem, 327–328, 336 ownership and control structure, 305 P/E ratio, 415, 417–418 pension funds, 180, 347–348, 363 Peters Committee, 199–201, 204, 209–210, 217, 221–229, 231 portfolio analysis, 471 portfolio choice, 455 post-announcement returns, 85 pre-announcement returns, 96–97 preference shares, 207, 216–217, 220 pricking-the-bubble strategy, 510, 512 principal-agent theory, 298, 302 priority shares, 207, 216–217, 223, 230 private versus public target firms, 59–60 productivity, 163–164, 167–169 pro-forma combined firm, 122–124, 127–128 public versus private target firms, 59–60 R&D, 162–163, 165–167, 169, 174 regime switches in short-term interest rates, 439–440 regulatory competition, 197 535 relationship banking, 140–141, 174, 177 and proprietary trading, 144–146 reputation and brand name/marketing, for scale and scope economies, 147–148 reputation costs, 394–395, 407, 409 reputation trade-off, 511 retail investments, 10 retail products, 474–476, 478, 480–481 rights, 365, 369, 372–374, 377–379 rights issue, 372, 374, 377–378 risk, 88, 93, 99–100 risk estimation, 324 risk measure, 473–477, 479–484 risk-management approach, 512 risk-shifting hypothesis, 324, 326, 335 S&P500, 78, 81 Sarbanes–Oxley Act (SOXA), 4, 190–191, 193–194, 197 scale and scope economies, in banking empirical evidence on, 143–147 evaluation of, 148–150 interpretation of empirical evidence on, 146–147 IT-related benefits in, 147–148 realization of, 147 reputation and brand name/marketing for, 148 sources of, 147–148 Schwartz-hypothesis, 506 secondary markets in, 381, 383, 387–390 Securities and Exchange Commission (SEC), 193 securitization and bank lending, 138–140 reconfiguration of banking by, 139 security offerings, 365–366, 370, 375, 379 self-regulation, 199–201, 204–205, 225, 228–229 sequential-financing hypothesis, 319, 327–328, 332–333 share price reactions, determinants of, 27–28 shareholder protection, 106, 108, 113, 121–122, 125–126 536 Subject Index shareholder rights, 108, 113, 121–122, 125–126, 130 shareholder value, 78, 97–98, 100 shareholder value creation, 108 shareholder wealth, 366, 373–374, 376, 378–379 short sales constraints, 450, 454–455, 461, 463–464 short-term interest rate modelling, 435 regime switches in, 439–440 short-term interest rate volatility, 438–439 signalling, 245–246, 270, 316, 318, 324–326, 335 soft information, 172 Standard Industry Classification (SIC) code, 107 stock lease products, 481 stock market, 366–367, 373, 376–377, 379 stock options, 277–285, 287, 289 stock performance, 78, 97, 99 structured regime, 200, 205–211, 214, 216–217, 221, 223, 230, 348, 353 supervisory board, 200, 205–207, 210, 220–221, 226, 230–231, 348–349, 351–359 supervisory practices, 171 syndicated loans, synergies, and takeovers, 28 takeover announcement, market reaction to, 26–27 takeover bids, means of payment in, 44–46 takeovers, see also individual entries motives for, 28–29 at the start, the peak and the decline of the fifth takeover wave, 62–64 Target CAARs, 49 around the M&A announcement, 40 by bid attitude, 43 by bid completion status, 57 by corporate strategy, 59 in cross-border bids by bidder legal origin, 55 in cross-border bids by target legal origin, 53 in domestic and cross-border bids, 47 in domestic bids by legal origin, 51 by means of payment, 45 by sub-periods of the fifth takeover wave, 64 by the form of takeover, 62 target firms CAARs for, see target CAARs legal origin of, 50–54 versus bidding firms, 40–42 Taylor rule, 505, 515 term structure expectation hypothesis of, 430–434 and macroeconomic variables, 442–445 term structure of interest rates, see yield curve term-structure models, 423–445 The Public Company Accounting Oversight Board (PCAOB), 190, 194, 196 timely intervention, of bank financing, 138 time-series approach, to modelling the short-term interest rate, 435–438 Tobin’s “q”, 509 total shareholder return, 86–87 Transaction cost theory, 296 transactional banking, 174 transatlantic regulatory challenge, 191, 193–194 transatlantic regulatory dialogue, 194, 196 transatlantic trade, 189–190 UK bids versus continental European bids, 48–50 underinvestment problem, 336 underpricing, 246, 254–255, 261–264, 267, 269–270 underwriter reputation, 246, 254, 263–264, 270 upwards sloping yield curve, 424–425 Subject Index valuation, 366, 373, 379 Value at Risk (VaR), 474 value chain, in banking, 150–151 value-oriented buyers, 84 value-weighted returns, 123–125 venture capital, 162, 178–181, 242, 246 warrant, 315, 317, 333, 376 wealth loss, 84–85 wealth transfers, 109 winner’s curse, 172 yield curve, 424, see also individual entries zero-coupon bonds, 424–428, 435 pricing, 429–430 zero rate bound, 509 537 This page intentionally left blank 538 .. .ADVANCES IN CORPORATE FINANCE AND ASSET PRICING i This page intentionally left blank ii ADVANCES IN CORPORATE FINANCE AND ASSET PRICING EDITED BY L RENNEBOOG Department of Finance and CentER,... reputation in fighting inflation, inflationary pressures first show up in asset- price Introduction: Corporate Restructuring and Governance, Valuation and Asset Pricing 11 inflation and increase... International Economics & Finance (BA and MSc) and International Business (MSc) His research interests are corporate finance, venture capital financing and initial public offerings and mergers & acquisitions