Philip G. Berger

REVISION: Breaking it Down: Economic Consequences of Disaggregated Cost Disclosures
Date Posted:Mon, 22 Aug 2022 18:27:10 -0500
Motivated by the FASB’s project on the disaggregation of income statement expenses, we study a Korean rule change that allowed firms to withhold a previously mandated disaggregation of Cost of Sales (CoS). We find that after withholding, firms’ profitability increases by 1.6 percentage points. Our industry-focused results suggest that withholding affects profitability by reducing the transfer of competitive information to peer firms. We then document a range of evidence consistent with the idea that firms withhold disaggregated CoS to protect cost-innovations from rivals. First, we construct a novel measure of firms’ cost innovative potential and show that it predicts withholding and subsequent profitability gains under the voluntary disclosure regime. Second, we document efficiency gains following the withholding of disaggregated CoS. Third, our survey-experiment of 1,257 US public firms’ managers shows that they would reduce investments in process/cost innovations if they were ...

REVISION: Breaking it Down: Economic Consequences of Disaggregated Cost Disclosures
Date Posted:Mon, 04 Apr 2022 08:18:50 -0500
Motivated by the FASB’s project about the disaggregation of performance information, we study a Korean rule change that allowed firms to withhold a previously mandated disaggregation of Cost of Sales (CoS). We find that after withholding, firms’ profitability increases by 7.8%. Our industry-focused results suggest that withholding affects profitability by reducing information flows between peer firms. We then document a range of evidence consistent with the idea that firms withhold disaggregating CoS to protect cost-innovations from rivals. First, we document efficiency gains following withholding of disaggregated CoS. Second, we construct a novel measure of firms’ cost innovative potential and show that it predicts withholding and subsequent profitability gains under the voluntary disclosure regime. Third, our survey-experiment of 1,257 US public firms’ managers shows that they would reduce investments in process/cost innovations if they were required to disaggregate CoS. Our study ...

REVISION: Did the Dodd-Frank Whistleblower Provision Deter Accounting Fraud?
Date Posted:Mon, 24 Jan 2022 05:57:21 -0600
We examine the deterrence effect of the Dodd-Frank whistleblower provision on accounting fraud. To facilitate causal inference, we use state False Claims Acts (FCAs), under which whistleblowing about accounting fraud at a firm invested in by a state's pension fund can result in monetary rewards from that state’s government. We divide our sample into firms exposed and not exposed to whistleblowing risk from a state FCA during the 2008 – 2010 period that preceded the 2011 SEC implementation of the Dodd-Frank whistleblowing provision. We hypothesize that firms already exposed to a state FCA whistleblower law are less affected by the Dodd-Frank whistleblower provision. Using the companies exposed to a state FCA as control firms in our Dodd-Frank tests, the remaining firms constitute the treatment sample. We find that exposure to Dodd-Frank reduces the likelihood of accounting fraud of treatment firms by 12% to 22% relative to control firms, but do not find that it affects audit fees.

REVISION: Did the Dodd-Frank Whistleblower Provision Deter Accounting Fraud?
Date Posted:Mon, 10 Jan 2022 18:33:35 -0600
We examine the deterrence effect of the Dodd-Frank whistleblower provision on accounting fraud. To facilitate causal inference, we use state False Claims Acts (FCAs), under which whistleblowing about accounting fraud at a firm invested in by a state's pension fund can result in monetary rewards from that state’s government. We divide our sample into firms exposed and not exposed to whistleblowing risk from a state FCA during the 2008 – 2010 period that preceded the 2011 SEC implementation of the Dodd-Frank whistleblowing provision. We hypothesize that firms already exposed to a state FCA whistleblower law are less affected by the Dodd-Frank whistleblower provision. Using the companies exposed to a state FCA as control firms in our Dodd-Frank tests, the remaining firms constitute the treatment sample. We find that exposure to Dodd-Frank reduces the likelihood of accounting fraud of treatment firms by 12% to 22% relative to control firms, but do not find that it affects audit fees.

REVISION: Breaking it Down: Economic Consequences of Disaggregated Cost Disclosures
Date Posted:Sun, 11 Apr 2021 06:13:34 -0500
Motivated by the FASB’s project about the disaggregation of performance information, we study a Korean rule change that allowed firms to withhold a previously mandated disaggregation of Cost of Sales. We hypothesize that, by withholding, a firm can protect cost innovations from rivals. Our headline result is that subsequent relative profitability increases by 7.8% for withholders. To elucidate the mechanism and highlight that cost-information itself drives the disclosure choice, we measure how distinct a firm’s cost structure is from its peers’, and show that such distinctness predicts withholding and subsequent profitability gains when the disclosure regime changes. Lastly, we take an aggregate perspective and show how across-firm information barriers created by withholding manifest as within-industry profitability dispersion.

REVISION: Breaking it Down: Economic Consequences of Disaggregated Cost Disclosures
Date Posted:Mon, 04 May 2020 03:31:56 -0500
Financial accounting affords considerable discretion to firms in aggregating internal information for external dissemination, yet little evidence exists about the consequences of such aggregation. We examine a central operational effect by studying whether withholding disaggregated cost information affects productivity. We hypothesize that, by withholding, a firm protects its productivity advantages from rivals. Using a rule change in Korea that allowed firms to withhold previously mandated Cost of Sales disaggregation, we find withholding firms’ productivity subsequently increases (relative to disclosers’). We then investigate the mechanism and show non-disclosers have cost structures distinct from those of their peers. Such distinctiveness leads to higher productivity only once firms gain disclosure flexibility. At the aggregate level, greater withholding increases productivity dispersion within industries, further consistent with nondisclosure increasing informational frictions ...

REVISION: Breaking it Down: Competitive Costs of Cost Disclosures
Date Posted:Fri, 14 Jun 2019 00:52:19 -0500
Does decomposing cost of goods sold entail significant competitive costs? We examine this question using a relaxation of disaggregated manufacturing cost disclosure requirements in Korea. Our survey evidence indicates managers perceive these disclosures to provide a competitive edge to competitors. Using archival data, we find firms with distinctive cost structures and high market shares are less willing to disclose, consistent with a desire to protect cost-leadership advantages embedded in production and sourcing. Firms experience higher gross profits and lower liquidity after withholding manufacturing cost details, suggesting these disclosure decisions involve trading off competitive costs (and not managers’ self-interests) against capital market benefits. At the aggregate level, industries with more nondisclosing firms subsequently experience greater profitability dispersion, suggesting uncertainty about competitors’ cost of goods sold helps drive the widely studied ...

REVISION: Breaking it Down: Competitive Costs of Cost Disclosures
Date Posted:Mon, 22 Apr 2019 11:04:54 -0500
Does decomposing cost of goods sold entail significant competitive costs? We examine this question using a relaxation of disaggregated manufacturing cost disclosure requirements in Korea. Our survey evidence indicates managers perceive these disclosures to provide a competitive edge to competitors. Using archival data, we find firms with distinctive cost structures and high market shares are less willing to disclose, consistent with a desire to protect cost-leadership advantages embedded in production and sourcing. Firms experience higher gross profits and lower liquidity after withholding manufacturing cost details, suggesting these disclosure decisions involve trading off competitive costs (and not managers’ self-interests) against capital market benefits. At the aggregate level, industries with more nondisclosing firms subsequently experience greater profitability dispersion, suggesting uncertainty about competitors’ cost of goods sold helps drive the widely studied ...

REVISION: Do Corporate Whistleblower Laws Deter Accounting Fraud?
Date Posted:Fri, 22 Mar 2019 02:19:21 -0500
We examine the deterrence effect of whistleblower laws on accounting fraud. We exploit state False Claims Acts (FCAs), under which reporting fraud at a firm invested in by a state's pension fund can result in monetary rewards from that state’s government. Using staggered adoption of FCAs between 2001 and 2010, we compare the accounting fraud probability of firms owned by state pension funds after FCA adoption in the state to that of firms not exposed to any state’s FCA. We find that firms' exposure to FCAs reduces the likelihood of accounting fraud by 5% to 9%. Consistent with the reduced likelihood of fraud lowering the risks of auditing the affected firms, audit fees are 4.5% to 6% lower after a firm is exposed to state FCAs relative to firm-years not treated. Conversely, we find little evidence consistent with increased investment in internal auditing being a mechanism by which whistleblowing exposure lowers fraud risk. Finally, we find the introduction of the Dodd-Frank ...

REVISION: Firm Specific Information and the Cost of Equity Capital
Date Posted:Mon, 16 Apr 2018 09:21:59 -0500
We develop a comprehensive and large-sample measure of a firm's information quality. The measure is the ratio of firm-specific return variation to firm-specific cash-flow variation. Empirical evidence supports the validity of our measure. Using this measure, we find that cost of equity capital decreases by about 0.4% on an annual basis if a firm's information quality increases by one standard deviation. This is consistent with the joint hypotheses that (1) firm-specific stock returns contain economic information as argued by Morck, Yeung, and Yu (2000) and (2) better information quality can lower the cost of equity.

REVISION: Does the Threat of Whistleblowing Reduce Accounting Fraud?
Date Posted:Wed, 25 Oct 2017 13:03:26 -0500
This paper examines the deterrence effect of state and federal corporate whistleblower laws on the probability of accounting fraud. Under state False Claims Acts (FCA), whistleblowers who report fraud involving that state's pension fund investments are eligible for monetary rewards. I use staggered adoption of FCAs by states between 2001 and 2010 to compare the probability of fraud for firms owned by state pension funds after the state adopts an FCA to other firms not exposed to any state FCA. I find that firms' exposure to the threat of whistleblowing under the FCA reduces the likelihood of accounting fraud by 7%, as measured by imputed measures of accounting quality. At the federal level, the introduction of the Dodd-Frank whistleblower provisions by the Securities and Exchange Commission in 2011 reduced the probability of accounting fraud to a greater extent for firms that had not been affected previously by state FCAs. I also find firms’ exposure to whistleblowing threats reduces ...

REVISION: Commercial Lending Concentration and Bank Expertise: Evidence from Borrower Financial Statements
Date Posted:Tue, 23 May 2017 23:46:02 -0500
Lending concentration features prominently in models of information acquisition by banks, but empirical evidence on its role is limited because banks rarely disclose details about their exposures or information collection. Using a dataset of bank-level commercial loan exposures, we find banks are less likely to collect audited financial statements from firms in industries and regions in which they have more exposure. These findings are stronger in settings in which adverse selection is acute and muted when the bank lacks experience with an exposure. Our results offer novel evidence on how bank characteristics are related to the type of financial information they use and support theoretical predictions suggesting portfolio concentration reveals a bank’s relative expertise.

REVISION: Commercial Lending Concentration and Bank Expertise: Evidence from Borrower Financial Statements
Date Posted:Thu, 23 Feb 2017 12:12:51 -0600
Lending concentration features prominently in models of information acquisition by banks, but empirical evidence on its role is limited because banks rarely disclose details about their exposures or information collection. Using a dataset of bank-level commercial loan exposures, we find banks are less likely to collect audited financial statements from firms in industries and regions in which they have more exposure. These findings are stronger in settings in which adverse selection is acute and muted when the bank lacks experience with an exposure. Our results offer novel evidence on how bank characteristics are related to the type of financial information they use and support theoretical predictions suggesting portfolio concentration reveals a bank’s relative expertise.

REVISION: Commercial Lending Concentration and Bank Expertise: Evidence from Borrower Financial Statements
Date Posted:Tue, 25 Oct 2016 11:42:40 -0500
Lending concentration features prominently in models of information acquisition by banks, but empirical evidence on its role is limited because banks rarely disclose details about their exposures or information collection. Using a novel dataset of bank-level commercial loan exposures, we find banks are less likely to collect audited financial statements from firms in industries and regions in which they have more exposure. These findings are stronger in settings in which adverse selection is acute and muted when the bank lacks experience with an exposure. Our results offer novel evidence on how bank characteristics are related to the type of financial information they use and support theoretical predictions suggesting portfolio concentration reveals a bank’s relative expetise.

REVISION: Commercial Lending Concentration and Bank Expertise: Evidence from Borrower Financial Statements
Date Posted:Wed, 06 Jul 2016 10:39:25 -0500
Concentration features prominently in models of information acquisition by banks. However, empirical evidence on the role of concentration is limited because banks rarely disclose details about their exposures or the information they collect. Using a novel dataset of bank-level commercial loan exposures, we find banks are less likely to collect audited financial statements from firms in industries and regions in which they have more exposure. These findings are stronger in settings in which adverse selection is acute and muted when the bank lacks experience with an exposure. Our results offer novel evidence on how organizational design is related to the type of financial information used by financial intermediaries and support theoretical predictions suggesting that portfolio concentration reveals a bank’s relative expertise.

REVISION: Commercial Lending Concentration and Bank Expertise: Evidence from Borrower Financial Statements
Date Posted:Fri, 26 Feb 2016 00:57:09 -0600
Concentration features prominently in models of information acquisition by banks. However, empirical evidence on the role of concentration is limited because banks rarely disclose details about their exposures or the information they collect. Using a novel dataset of bank-level commercial loan exposures, we find banks are less (more) likely to collect audited financial statements from firms in industries in which they have more (new) exposure. We exploit variation in the impact of the housing boom on construction lending to confirm these findings. The negative relation between exposure concentration and audited financial statement collection increases with bank size, suggesting scale is an important mechanism in information acquisition. Our results offer novel evidence on how lending concentration is related to the type of financial information used by the bank, suggesting that focus reveals a bank’s relative expertise.

New: Do Analysts Say Anything About Earnings Without Revising Their Earnings Forecasts?
Date Posted:Mon, 08 Feb 2016 03:43:25 -0600
We identify a novel bias in analyst forecasts, after revision bias, which we identify by examining an analyst’s reports after his final earnings forecast of the quarter. We document that (i) qualitative predictions from the text of reports, (ii) share price target revisions, and (iii) revisions to next quarter’s earnings forecast predict error in the current quarter’s earnings forecast. Market returns are slow to impound the information in qualitative predictions and share price target revisions. Analysts are more likely to disseminate positive news after the current quarter’s final earnings forecast, consistent with analysts acting to maintain a beatable benchmark for managers. We argue our findings are consistent either with analysts acting to tip clients or with frictions limiting the frequency of quarterly forecast revisions. Our results demonstrate that the value of the current quarter’s earnings forecast to managers and investors distorts the flow of information into the ...

REVISION: There is more to a Bank than its Size: Bank Expertise and Financial Information Collection
Date Posted:Thu, 24 Sep 2015 08:38:58 -0500
Along with size, exposure concentration features prominently in models of how bank characteristics interact with bank information collection practices. However, empirical evidence on the role of diversification is limited because of difficulty in measuring banks’ loan exposures. Using a new data source, we find banks collect audited financial statements more frequently from firms in industries in which the bank has relatively less exposure or that are new exposures for the bank. We show that our results are complementary to, but distinct from, the relation between bank size and verified financial report collection. We also exploit variation in the impact of the housing boom on construction lending to confirm these results. We conclude that exposure concentration reveals a bank’s relative expertise and that expertise substantively shapes the bank’s information collection practices.

REVISION: There is more to a Bank than its Size: Bank Expertise and Financial Information Collection
Date Posted:Wed, 23 Sep 2015 02:11:30 -0500
Along with size, exposure concentration features prominently in models of how bank characteristics interact with bank information collection practices. However, empirical evidence on the role of diversification is limited because of difficulty in measuring banks’ loan exposures. Using a new data source, we find banks collect audited financial statements more frequently from firms in industries in which the bank has relatively less exposure or that are new exposures for the bank. We show that our results are complementary to, but distinct from, the relation between bank size and verified financial report collection. We also exploit variation in the impact of the housing boom on construction lending to confirm these results. We conclude that exposure concentration reveals a bank’s relative expertise and that expertise substantively shapes the bank’s information collection practices.

REVISION: Firm Specific Information and the Cost of Equity Capital
Date Posted:Tue, 18 Sep 2012 01:01:03 -0500
We develop a comprehensive and large-sample measure of a firm's information quality. The measure is the ratio of firm-specific return variation to firm-specific cash-flow variation. Empirical evidence supports the validity of our measure. Using this measure, we find that cost of equity capital decreases by about 0.4% on an annual basis if a firm's information quality increases by one standard deviation. This is consistent with the joint hypotheses that (1) firm-specific stock returns contain ...

REVISION: Firm Specific Information and the Cost of Equity Capital
Date Posted:Sun, 16 Sep 2012 14:42:39 -0500
We develop a comprehensive and large-sample measure of a firm's information quality. The measure is the ratio of firm-specific return variation to firm-specific cash-flow variation. Empirical evidence supports the validity of our measure. Using this measure, we find that cost of equity capital decreases by about -0.4% on an annual basis if a firm's information quality increases by one standard deviation. This is consistent with the joint hypotheses that (1) firm-specific stock returns contain ...

REVISION: Firm Specific Information and the Cost of Equity Capital
Date Posted:Wed, 24 Aug 2011 21:19:08 -0500
We develop a comprehensive and large-sample measure of a firm's information quality. The measure is the ratio of firm-specific return variation to firm-specific cash-flow variation. Empirical evidence supports the validity of our measure. Using this measure, we find that cost of equity capital decreases by about -0.4% on an annual basis if a firm's information quality increases by one standard deviation. This is consistent with the joint hypotheses that (1) firm-specific stock returns contain ...

REVISION: Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Exte
Date Posted:Wed, 18 Nov 2009 10:39:20 -0600
We use confidential, U.S. Census Bureau, plant-level data to investigate aggregation in external reporting. We compare firms’ plant-level data to their published segment reports, conducting our tests by grouping a firm’s plants that share the same four-digit SIC code into a “pseudo-segment.” We then determine whether that pseudo-segment is disclosed as an external segment, or whether it is subsumed into a different business unit for external reporting purposes. We find pseudo-segments are more ...

REVISION: Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Ext
Date Posted:Mon, 21 Sep 2009 15:17:00 -0500
We use confidential, U.S. Census Bureau, plant-level data to investigate aggregation in external reporting. We compare firms’ plant-level data to their published segment reports, conducting our tests by grouping a firm’s plants that share the same four-digit SIC code into a “pseudo-segment.” We then determine whether that pseudo-segment is disclosed as an external segment, or whether it is subsumed into a different business unit for external reporting purposes. We find pseudo-segments are more ...

REVISION: Segment Profitability and the Proprietary and Agency Costs of Disclosure
Date Posted:Sun, 28 Jan 2007 21:02:43 -0600
We exploit the change in U.S. segment reporting rules (from SFAS 14 to SFAS 131) to examine two motives for managers to conceal segment profits: proprietary costs and agency costs. Managers face proprietary costs of segment disclosure if the revelation of a segment that earns high abnormal profits attracts more competition and hence reduces the abnormal profits. Managers face agency costs of segment disclosure if the revelation of a segment that earns low abnormal profits reveals unresolved ...

REVISION: Segment Profitability and the Proprietary and Agency Costs of Disclosure
Date Posted:Sat, 13 Jan 2007 06:45:39 -0600
We exploit the change in U.S. segment reporting rules (from SFAS 14 to SFAS 131) to examine two motives for managers to conceal segment profits: proprietary costs and agency costs. Managers face proprietary costs of segment disclosure if the revelation of a segment that earns high abnormal profits attracts more competition and hence reduces the abnormal profits. Managers face agency costs of segment disclosure if the revelation of a segment that earns low abnormal profits reveals unresolved ...

REVISION: Segment Profitability and the Proprietary and Agency Costs of Disclosure
Date Posted:Wed, 03 Jan 2007 16:57:30 -0600
We exploit the change in U.S. segment reporting rules (from SFAS 14 to SFAS 131) to examine two motives for managers to conceal segment profits: proprietary costs and agency costs. Managers face proprietary costs of segment disclosure if the revelation of a segment that earns high abnormal profits attracts more competition and hence reduces the abnormal profits. Managers face agency costs of segment disclosure if the revelation of a segment that earns low abnormal profits reveals unresolved ...

REVISION: The Impact of SFAS No. 131 on Information and Monitoring
Date Posted:Mon, 11 Dec 2006 10:17:24 -0600
We investigate the effect of the FASB's new segment reporting standard on the information and monitoring environment. We compare hand-collected, restated SFAS 131 segment data for the final SFAS 14 fiscal year to the historical Statement 14 data. We find that Statement 131 increased the number of reported segments and provided more disaggregated information. Analysts and the market had access to a portion of the new segment information before it was made public, but analyst and market ...

REVISION: Firm Specific Information and Cost of Equity
Date Posted:Thu, 08 Jun 2006 05:17:24 -0500
We develop a comprehensive and large-sample measure of a firm's information quality. The measure is the ratio of firm-specific return variation to firm-specific cash-flow variation. Empirical evidence supports the validity of our measure. Using this measure, we find that cost of equity capital decreases by about -0.4% on an annual basis if a firm's information quality increases by one standard deviation. This is consistent with the joint hypotheses that (1) firm-specific stock returns contain ...

Segment Disclosures, Proprietary Costs, and the Market for Corporate Control
Date Posted:Sun, 23 Feb 2003 06:51:54 -0600
Recent studies provide evidence that the new segment reporting rule, SFAS 131, induced companies to provide more disaggregated segment information. We use adoption of the new standard to identify firms that aggregated segment information under the old standard, SFAS 14, and examine two motives for managers to aggregate segment information. First, withholding proprietary information and, second, avoiding external scrutiny from the market for corporate control. We find firms that increased their ...

Discussion of 'Anomalous Stock Returns Around Internet Firms' Earnings Announcements'
Date Posted:Wed, 05 Feb 2003 06:29:00 -0600
Trueman, Wong, and Zhang (TWZ) investigate an apparent anomaly in the pricing of internet firms around their earnings announcements, which they attribute to price pressure. The discussion addresses three concerns. The paper is unusual in choosing an event (earnings announcements) that does not appear to have an obvious non-information-related reason for triggering unjustified changes in demand for the firm's shares. Relatedly, there are limitations to the tests made of the price pressure ...

The Effect of Extreme Accounting Events on Analyst Following and Forecast Accuracy
Date Posted:Mon, 01 May 2000 02:59:07 -0500
This paper uses a simultaneous equations system to examine the effect of extreme accounting events in the previous fiscal year on analyst following and forecast accuracy. We measure extreme accounting events by the magnitude of a company's restructuring charges and by an information signal based on the fundamental variables in Lev and Thiagarajan (1993). Our results indicate that the existence of an extreme accounting event impairs analysts' ability to predict future earnings. These results ...

The Role of Taxes, Financial Reporting, and Other Market Imperfections in Structuring Divisive Reorg...
Date Posted:Wed, 26 Apr 2000 02:55:06 -0500
We examine the relative importance of taxes and nontax factors in explaining companies' decision to divest using a sale to a third party versus a spinoff to existing shareholders. We find that taxes outweigh financial reporting motives for unaggressive financial reporters, but that the two factors are weighted equally by aggressive reporters. This finding adds to the literature on firms' willingness to forsake tax benefits in order to increase reported income. Additional results indicate that ...

Investor Valuation of the Abandonment Option
Date Posted:Tue, 25 Apr 2000 03:46:43 -0500
We investigate whether investors use balance sheet information to value their option to abandon the continuing business in exchange for the assets' exit value. As opposed to papers that examine the potential for balance sheet disclosures to provide incremental information about the expected level of future going-concern cash flows, our study assesses the extent to which balance sheet information affects firm value given the level of expected going-concern cash flows. Theory prices the ...

A Simultaneous Equations Analysis of Forecast Accuracy, Analyst Following, and Trading Volume
Date Posted:Tue, 23 Nov 1999 05:22:24 -0600
We use a simultaneous equations model to study forecast accuracy, analyst following, and trading volume. Forecast accuracy and analyst following are determined simultaneously, with greater accuracy associated with higher following. This result supports the idea that an analyst?s private information complements, rather than substitutes for, factors that increase certainty about the firm?s prospects. Stocks generating more trading volume (and thus greater brokerage commissions) have higher ...

Causes and Effects of Corporate Refocusing Programs
Date Posted:Tue, 08 Dec 1998 01:06:48 -0600
Despite the weakening disciplinary role of the takeover market, there has been a rash of divestiture and split-up announcements recently by such prominent firms as AT&T, ITT, W.R. Grace, and many others. In this paper we examine refocusing decisions by diversified firms that have not been taken over, with the goal of closing some of the gaps in our understanding of the workings of different sources of management discipline. We study the effect on refocusing likelihood of four factors: The ...

Causes and Effects of Corporate Refocusing
Date Posted:Tue, 08 Dec 1998 01:03:17 -0600
We study the precursors and outcomes of refocusing episodes by 107 diversified firms that were not taken over between 1984 and 1993. These firms had more value-reducing diversification policies than diversified firms that did not refocus. However, major disciplinary or incentive-altering events (including management turnover, outside shareholder pressure, changes in management compensation, and financial distress) usually occurred before refocusing took place. The cumulative abnormal returns ...

Bustup Takeovers of Value-Destroying Diversified Firms
Date Posted:Thu, 05 Feb 1998 05:07:13 -0600
We examine whether the value loss from diversification affects takeover and break-up probabilities. We estimate diversification's value effect by imputing stand-alone values for individual business segments and find that firms with greater value losses are more likely to be taken over. Moreover, those acquired firms whose losses are greatest are most likely to be bought by LBO associations, which frequently break-up their targets. For a subsample of large diversified targets: (1) higher value ...

Bustup Takeovers of Value-Destroying Diversified Firms
Date Posted:Thu, 05 Feb 1998 05:02:39 -0600
We estimate the effect that value-destroying diversification has on the probabilities of takeover and break-up. Recent papers show that unrelated diversification decreased firm value, that the value loss is reversible, that bidder gains from takeovers are higher when their targets' managers have destroyed more value, and that break-ups and selloffs are a common result of takeovers. Considering these findings together leads us to hypothesize that as the amount of value destroyed by a firm's ...

Managerial Entrenchment and Capital Structure Decisions
Date Posted:Mon, 15 Dec 1997 01:22:48 -0600
We study associations between managerial entrenchment and firms' capital structures, with results generally suggesting that entrenched CEOs seek to avoid debt. In a cross- sectional analysis, we find that leverage levels are lower when CEOs do not face pressure from either ownership and compensation incentives or active monitoring. In an analysis of leverage changes, we find that leverage increases in the aftermath of entrenchment-reducing shocks to managerial security, including unsuccessful ...