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SESSION III-1 : CORPORATE FINANCE I (18/12/2008 à 14h00)

Stock Price and Systematic Risk Effects of Discontinuation of Corporate R&D Programs

Auteurs : SAAD Mohsen (American University of Sharjah) ; ZANTOUT Zaher ( American University of Sharjah)

Intervenants : SAAD Mohsen (American University of Sharjah)

We extend the evidence on whether investors impound efficiently into stock prices new disclosures about corporate R&D programs. We find firms that disclose the discontinuation of some of their R&D programs experience a significant negative announcement-period stock price response which is worse for growth stocks, for small-size firms, and for firms with low operating cash flow. We find no evidence that R&D-discontinuing firms experience an event-induced change in their systematic risk. We find evidence of a one-year-long price reversal; however, it is not robust to controlling for possible risk dimensions for firms with R&D capital that the three-factor model does not capture. Evidently, investors’ initial response at disclosures of discontinuation of corporate R&D programs is efficient.

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Multiple Large Shareholders, Control Contests, and Implied Cost of Equity

Auteurs : ATTIG Najah (Saint Mary’s University); GUEDHAMI Omrane (University of South Carolina); MISHRA Dev (University of Saskatchewan)

Intervenants : MISHRA Dev (University of Saskatchewan)

In this paper, we examine whether the presence of multiple large shareholders alleviates firm’s agency costs and information asymmetry embedded in ultimate ownership structures. We extend extant corporate governance research by addressing the effects of multiple large shareholders on firm’s cost of equity capital—a proxy for firm’s information quality. Using data for 1,165 listed corporations from 8 East Asian and 13 Western European countries, we find evidence that the implied cost of equity decreases in the presence of large shareholders beyond the controlling owner. We also find that the voting rights, the relative voting size (vis-à-vis the first largest shareholder) and the number of blockholders reduces firm’s cost of equity. Interestingly, we uncover that the presence of multiple controlling shareholders with comparable voting power lowers firm’s cost of equity. We also find that the identity of the second largest shareholder is important in determining the risk of corporate expropriation in family-controlled firms. Our regional analysis reveals that, mainly in East Asian firms, multiple large shareholders structures exert an internal governance role in curbing private benefits and reducing information asymmetry evident in cost of equity financing, perhaps to sidestep deficiencies in the external institutional environment.

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The Political Determinants of the Cost of Equity: Evidence from Newly Privatized Firms

Auteurs : BEN NASR Hamdi (Université Laval); BOUBAKRI Narjess & COSSET Jean-Claude (HEC Montréal)

Intervenants : COSSET Jean-Claude (HEC Montréal)

We investigate the impact of government control and political characteristics of the privatizing government on the cost of equity of newly privatized firms. Using cost of equity estimates implied in current stock prices and analysts’ earnings forecasts for a sample of 126 privatized firms from 25 countries between 1987 and 2003, we find strong, robust evidence that the cost of equity is increasing in government control, while controlling for other determinants of the cost of equity. We also find that the cost of equity is significantly related to the political system and government tenure (stability). Furthermore, we find that while the cost of equity is increasing in government control, this effect is less pronounced in countries with democratic and more stable governments. Our core findings persist after controlling for the institutional environment.

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