Ownership structure plays a critical role in the incentives and behaviors of business organizations. The literature has focused on the effects of firm ownership dispersion across managers and investors. We extend the literature by examining the roles of ownership structure within a controlling family. Specifically, we focus on the family trust structure, which is a popular vehicle for holding family ownership around the world. The trust structure typically locks controlling ownership within a family for a very long period. Although it ensures family control, the share transfer restriction may induce family shirking problems, make family conflicts difficult to resolve, and distort firm decisions. Based on a sample of publicly traded family firms in Hong Kong, we report that trust-controlled firms that are more susceptible to these problems tend to pay higher dividends, invest less in the long term, and experience worse performance. The costs of using a trust structure are more significant when the family stakes have been locked inside the trust for a longer period and when a larger amount of family ownership is held by the trust.

This study explores the impact of joint corporate asset restructuring decisions, where firms sell an asset in order to fund a subsequent acquisition (selling-to-buy). We find that firms with asset sales are associated with increased acquisition probability. The effect is more pronounced for financially constrained firms. We also show that, in addition to the established improved firm efficiency from focus-increasing asset sales, financially constrained firms obtain the necessary funds to conduct focus-increasing acquisitions, improving further their efficiency. This translates into both higher long-run operating performance and stock abnormal returns at the asset sale announcement.

We investigate the determinants of the choice between two forms of corporate divestitures—spin-offs versus sell-offs. We hypothesize that the choice is driven by the pre-divestiture market valuation of divesting firms relative to their intrinsic value, the pre-divestiture performance of the assets being divested relative to their full potential, and the prevailing degree of investor optimism or pessimism about the market at the time of divestiture. Our hypotheses generate testable predictions regarding the announcement effects of divestitures and the post-divestiture operating performance of divesting firms. Our empirical findings using a sample of 378 spin-offs and 4192 sell-offs from 1980 to 2011 are as follows. First, firms with lower market valuations relative to their intrinsic value are more likely to spin off their assets. Second, assets which underperform relative to their full potential are more likely to be sold off. Third, spin-offs are more likely during periods of investor optimism. Fourth, spin-offs are associated with more positive announcement effects than sell-offs. Finally, firms which sell off their assets exhibit better post-divesture long-term operating and stock return performance compared to those which spin off their assets.

Results of empirical studies of the trade-off theory of capital structure indicate that an important, stable factor is missing from traditional leverage regression models. Our review of theory leads us to the hypothesis that the missing factor is related to profitable growth options (GOs). Specifically, the relationship between optimal leverage and the market-to-book assets ratio (MB), a measure of GOs, is negative and highly convex. In tests of static trade-off theory, we find that a convex (inverse exponential) transformation of MB substantially increases adjusted R2 in leverage regressions, and partially subsumes the explanatory power of median industry leverage. Using the transformed MB variable also yields stronger results in tests of dynamic trade-off theory, including analyses of leverage evolution, speed of adjustment, and external financing activity.

We re-examine old evidence and provide new evidence on private placements of large-percentage blocks of stock. Our goal is to judge whether the prevailing hypotheses of monitoring and certification explain most private placements. Examining new evidence on events following the private placements and using a much larger sample than previous studies, our findings suggests that private placements are often made to passive investors, thereby helping management solidify their control of the firm. Although monitoring and certification may motivate some private placements, the evidence with respect to placement discounts, stock-price reactions, the post-placement activities of the purchasers, and a comparison with arm's-length trades of large blocks of stock favors managerial entrenchment as the explanation for many private placements.

Value maximization requires either that knowledge is transferred to those with the right to make decisions, or that decision rights are transferred to those who have the knowledge. A tradeoff of knowledge transfer costs and control costs is required. Characteristics of firms' investment opportunity sets (IOSs) that affect knowledge transfer costs and control costs are identified. Testable predictions about the relations between these characteristics and firms' decentralization decisions are developed and tested. The evidence presented is consistent with our predictions and is robust to different ways of measuring variables.

There is considerable controversy on the role of corporate insider trading in the financial markets. However, there appears to be a consensus view that some form of regulation concerning their activities should be imposed. One such constraint involves a trading ban in periods when corporate insiders are expected to be advantaged vis-à-vis the information flow. This paper directly tests whether constraints of this kind are effective in curtailing insider activity through a study of the trading characteristics of UK company directors. The London Stock Exchange Model Code (1977) imposes a two-month close period prior to company earnings announcements. We find that although the close period affects the timing of director trades, it is unable to affect their performance or distribution. Directors consistently earn abnormal returns irrespective of the period in which they trade. They tend to buy after abnormally bad earnings news and sell after abnormally good earnings news. Moreover, there are systematic differences in the trading patterns of directors surrounding interim and final earnings announcements. It appears that many corporate insiders have private information and exploit this in their trading activities. As a result, one can conclude that trading bans do not impose significant opportunity costs on the trading of corporate insiders.

Equity finance, raised through a rights issue, is a popular method for funding acquisitions in UK. Acquisitions are often contingent on a number of external factors. This paper uses a binomial asset pricing model to examine the effects on the share price of a company that undertakes an equity rights issue to fund a contingent acquisition. We consider a new equity rights issue instrument called a non-interest bearing convertible unsecured loan stock (NICULS), specifically designed to deal with contingent acquisitions. We develop our model in two stages. First, we assume perfect foresight on behalf of the issuing company and investors and, secondly, we develop a model that relaxes these restrictive assumptions, called a NICULS model. Our preliminary findings based on a case study show that there is a dip in the share price over and above that expected by the dilution effect of the increased number of shares. We interpret this either as a natural consequence of the market's evaluation of the value of the investments for which the funds were raised or as a signal imparted by the company about the future investment opportunities of the company. We have also found that the market's expectation of the success of the acquisition attempt has a direct and significant effect on the observed dip in the share price.

Dividends are clustered in increments of 5, such as 25, 50, and 75. Firms that gravitate towards these ‘prominent’ amounts have lower operating performance and lower annual five-factor alphas of 77 b.p. Consistent with agency frictions that lead to lazy decisions, clustering effects are stronger for entrenched firms, with more market power, and less shareholder activism. Dividend increases also cluster more than cuts, consistent with saliency bias. In a counterfactual exercise, we find no similar patterns in a sample of ADRs. Our results complement a number of recent studies showing the economic importance of simple decision heuristics.

We examine whether adding more founding family members as firm owners and/or managers matters to corporate governance outcomes. Based on a sample of 1242 founder-controlled publicly traded Chinese private-sector firms, we find that more such family involvement is associated with lower volumes of related party transactions suspicious of expropriating shareholder wealth. The curtailing relation is stronger when family members own firm shares and/or serve as managers, and are more arm's-length relatives instead of immediate kin of the founders. The intra-family governance effects are stronger when firms are subject to weaker capital market disciplines or have more free cash under insider discretion. The overall evidence is consistent with founding family members' information advantages and ownership incentives making them more robust monitors of managerial decisions than other formal mechanisms, which help enforce shareholder rights in emerging markets.