Contingent Convertible Bonds (CoCos) with conversion ratios that dilute issuer's shareholders generate incentives to preemptively raise equity capital to avoid triggering conversion. Our dynamic model provides an interior solution for the unique optimal conversion ratio and the capital structure policies that maximizes issuer's value net of deadweight costs. Preemptive recapitalization induced by moderately dilutive conversion terms leads to fewer defaults, lower borrowing rates, and higher debt capacity when compared to less dilutive terms. However, highly dilutive conversion ratios do not always enhance efficiency because issuers facing very high dilution risk recapitalize too frequently, generating excessive adjustment costs. Conversely, if CoCo's principal is written-down at the conversion without diluting shareholders, then the issuer will have perverse incentives to destroy a portion of its capital (“burn money”) to force conversion and generate windfall gains for shareholders.

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.

Recent literature suggests that some socially responsible corporate actions benefit shareholders while others do not. We study differences in policy toward corporate social responsibility (CSR) between family and non-family firms, using environmental performance as the proxy for CSR. We show that family firms are more responsible to shareholders than non-family firms in making environmental investments. When shareholder interests and societal interests coincide, i.e., when it comes to alleviating environmental concerns that have potential to harm society and elevate the firm's risk exposure, family firms do at least as well as non-family firms in protecting shareholder interests. However, when shareholder and societal interests diverge, i.e., when it comes to making environmental investments that might benefit society but do not benefit shareholders, family firms protect shareholder interests by undertaking a significantly lower level of such investments than non-family firms. Our findings suggest that lack of diversification by controlling families creates strong incentives for them to act in the financial interest of all shareholders, which more than overcomes any noneconomic benefits families may derive from engaging in social causes that do not benefit non-controlling shareholders.

New evidence from acquisition decisions suggests that antitakeover provisions (ATPs) may increase firm value when internal corporate governance is sufficiently strong. We document that, in Germany, firms with stronger ATPs, and particularly supermajority provisions, are better acquirers. Managers of high-ATP firms create value in acquisitions by making governance-improving deals. They are more likely to engage in acquisitions that reduce their own entrenchment level and less likely to invest in declining industries. The empirical evidence is consistent with a short-termist interpretation. Takeover threats can induce myopic investment decisions, which ATPs can mitigate. They lead managers to engage more often in value-creating long-term and innovative investing, and increase a firm's sensitivity to investment opportunities. Our findings contribute to a growing literature challenging conventional wisdom that the agency-increasing effect of ATPs empirically dominates the myopia-eliminating effect, suggesting that a more contextual view of the value implications of ATPs is necessary.

We examine the role of institutional investors in initial coin offerings (ICOs). Taking a financial investor's perspective, we assess the determinants of post-ICO performance via buy-and-hold abnormal returns (BHAR) in a sample of 565 ICO ventures. Conceptually, we argue that institutional investors' superior screening (selection effect) and coaching abilities (treatment effect) enable them to partly overcome the information asymmetry of the ICO context and extract informational rents from their ICO investments. We find that institutional investor backing is indeed associated with higher post-ICO performance. Disentangling selection and treatment effects econometrically, we find that both of these effects explain the positive impact institutional investors have on post-ICO performance. Overall, our results highlight the importance of institutional investors in the ICO context.

Merger control exists to help safeguard effective competition. However, findings from a natural experiment suggest that regulatory merger control reduces the profitability of corporate acquisitions. Uncertainty about merger control decisions reduces takeover threats from foreign and very large acquirers, therefore facilitating agency-motivated deals. Valuation effects are more pronounced in countries with stronger law enforcement and in more concentrated industries. Our results suggest that competition policy may impede the efficiency of the M&A market.

We examine state income and reputation incentives to account for the high dividends of privatized firms. Consistent with these agency-cost based incentives, we show strong and robust evidence that the extent of state ownership is positively related to corporate dividends. We distinguish between the empirical importance of these incentives using variation in the rule of law to protect minority shareholders, the fiscal deficit and the political orientation of the state. Our findings show that an incentive to enhance the state's reputation with minority shareholders can account for the high dividends of privatized firms.

We examine the diversification choices and financial performance of companies run by former bureaucrats in China. We find that the ex-bureaucrat led companies are involved in more diversified business lines than other firms managed by professionals without such government backgrounds. While former bureaucrats that manage state-owned enterprises (SOEs) tend to operate in unattractive industries, those who manage private firms do businesses in more profitable, faster-growing, and more related industries. The diversification of private firms is helped by additional borrowing capacity brought in by ex-bureaucrat CEOs, while no such financing effect is found in SOEs. The overall diversification performance associated with bureaucrat CEOs is positive in private firms, but not in SOEs. As manifested by the different diversification strategies and outcomes between private firms and SOEs, the government-linked CEOs facilitate transfers of critical business resources that benefit either owners' or governments' goals.