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Session VIII-2 Corporate Finance & Information (18/12/2009 à 15h30)

H. de la Bruslerie

Corporate serial acquisitions: An empirical test of the learning hypothesis

Auteurs : Nihat Aktas (EMLYON Business School); Eric de Bodt (Université Lille Nord de France); Richard Roll (The Anderson School UCLA)

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Intervenants : Nihat Aktas (EMLYON Business School)

Rapporteurs : Hubert de la Bruslerie

Aktas, de Bodt and Roll (forthcoming, Journal of Corporate Finance) develop a theoretical model of CEO learning in merger and acquisition deal making. This study offers a test of the learning hypothesis using a sample of 235 U.S. CEOs. Consistent with the theory, CEOs take investors’ reactions to their previous deal announcements into account to adjust their bidding behaviors in subsequent transactions.

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Real option Financing under asymmetric information

Auteurs : Matthieu Bouvard (Toulouse University and McGill University)

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Intervenants : Matthieu Bouvard (Toulouse University and McGill University)

Rapporteurs : Laurent Frésard

We extend a standard model of financing under asymmetric information to the case where the investment opportunity is a real option. An initial investment gives access to a public signal that takes the form of a poisson process of unknown parameter. Observing the realization of this process through time generates information on the value of implementing a project, but is costly because it delays cash-flows. The project is owned by a cash-constrained entrepreneur who needs an outside investor to finance the initial investment, as well as a potential future development. An adverse selection problem arises, as the entrepreneur receives some private information about the profitability of the project and enjoys private benefits from the moment where it is fully implemented. This gives him an incentive to hurry implementation by overstating the project prospects. In line with common practices in venture capital, we show that it is optimal to include investment timing in the financial contract (“ex-ante staging”) as an instrument to induce information revelation. This creates however a distortion towards late investment. Furthermore the adverse selection problem may lead to a complete market breakdown where the initial investment cannot be financed. We show that cash holdings of the entrepreneur accelerate investment and increase risk-taking. We derive empirical predictions about the relationships between pay, performance, investment timing and corporate governance.

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Corporate savings and price informativeness

Auteurs : Laurent Frésard (HEC School of Management)

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Intervenants : Laurent Frésard (HEC School of Management)

Rapporteurs : Issam Hallak

This paper examines the process whereby firms accumulate their cash reserves, i.e. their savings decisions. The investigation illustrates that stock prices, and more importantly, the private information they contain, play a crucial role in explaining firms’ savings choices. I start by documenting that a firm’ savings are highly sensitive to its stock price. This positive association indicates that firms tend to transfer more resources into their cash balances when the market foresees valuable future prospects. Strikingly, such a precautionary mechanism turns out to be amplified when the market price contains a larger content of private investors’ information. Hence, the findings are consistent with the view that managers learn from observing the level of their stock price. Moreover, further test show that this defensive learning is not due to the uncaptured effect of market mispricing or financing constraints. Overall, the analysis importantly highlights that the nature and precision of the available information about firms’ future prospects are crucial ingredients of their saving choices.

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