Jonathan R. Macey & Joshua Mitts, Asking the Right Question: The Statutory Right of Appraisal and Efficient Markets, SSRN (2018)

We contend that courts should look at the market price of the securities of a target company whose shares are being valued, unadjusted for the news of the merger, rather than at the deal price that was reached by the parties in the transaction.

Unadjusted market price has two distinct advantages over deal price. First, the unadjusted market price automatically subtracts the target firm’s share of the synergy gains and agency cost reductions impounded in the deal price. This is appropriate to do because dissenting shareholders in appraisal proceedings are not entitled to these increments of value which are supplied by the bidder. Second, the unadjusted market price is unaffected by any flaws in the deal process that led to the ultimate merger agreement. Recently, commentators have contended that deal prices in merger transactions should be ignored in appraisal cases where there are flaws in the process that led to the sale.

Fernan Restrepo, Judicial Deference, Procedural Protections, and Deal Outcomes in Freezeout Transactions: Evidence from the Effect of MFW

This work next explores the effect of MFW on the gains of the target shareholders, as measured by the premium over market prices, the cumulative abnormal returns around the announcement of the transaction, and the change from the buyer’s first offer to the final offer. This part of the analysis considers two hypotheses. The first hypothesis predicts that the gains of the target should be higher after MFW because shareholder voting acts as a check against negligent or captured boards, and even if boards discharged appropriately their fiduciary duties, the target shareholders can still use the threat of a veto to push acquirers to raise their offer (Subramanian, 2005, 15; Edelman and Thomas, 2015, 468; Jiang, Li, and Mei, 2016). As a result, the fact that MFW effectively incentivized MOM conditions should lead to an upward pressure on deal prices. The second hypothesis suggests, in contrast, that the target gains should remain similar after MFW because freezoeuts were already subject to significant scrutiny before 2013, and judicial scrutiny appears to be an effective substitute for procedural protections (Subramanian, 2007; Restrepo, 2013; Restrepo and Subramanian, 2015). As discussed in Section 4, the results generally support this hypothesis.

Yakov Amihud, Markus M. Schmid & Steven Davidoff Solomon, Do Staggered Boards Affect Firm Value?, — Iowa Law Review — (forthcoming 2017)

We attempt to resolve conflicting empirical results in studies on the wealth effects of staggered boards by addressing issues of endogeneity, omitted variable bias and functional form. In a sample of up to 2,961 firms from 1990 to 2013 we find that additional variables provide significant explanatory power for the (negative) wealth effects of staggered firms found in prior studies, and their inclusion makes the effect of a staggered board on firm value insignificant. When we control for endogeneity by the instrumental variable method, we find again that the staggered board has no significant effect on firm value. Our results suggest caution about legal solutions which advocate wholesale adoption or repeal of the staggered board and instead evidence an individualized firm approach, and provide some measure of skepticism for law-related corporate governance proposals generally.

The free dividend fallacy could be costing you

  • The free dividend fallacy could be costing you

We show that many individual investors, mutual funds and institutions trade as if dividends and capital gains are separate disconnected attributes, not fully appreciating that dividends come at the expense of price decreases. Behavioral trading patterns (e.g. the disposition eect) are driven by price changes excluding dividends. Investors treat dividends as a separate stable income stream, holding high dividend-yield stocks longer and displaying less sensitivity to their price changes. Demand for dividends is systematically higher in periods of low interest rates and poor market performance, leading to high valuations and lower future returns for dividend-paying stocks. Investors rarely reinvest dividends into the stocks from which they came, instead purchasing other stocks. This creates predictable marketwide price increases on days of large aggregate dividend payouts, concentrated in stocks not paying dividends.